ARATA CORPORATION / 2733 · ARATA CORPORATION / 2733 COVERAGE INITIATED ON: 2019.06.26 LAST UPDATE:...
Transcript of ARATA CORPORATION / 2733 · ARATA CORPORATION / 2733 COVERAGE INITIATED ON: 2019.06.26 LAST UPDATE:...
ARATA CORPORATION / 2733
COVERAGE INITIATED ON: 2019.06.26
LAST UPDATE: 2020.03.30
Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to
provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate,
objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will
always present opinions from company management as such. Our views are ours where stated. We do not try to
convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at
[email protected] or find us on Bloomberg.
Research Coverage Report by Shared Research Inc.
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INDEX
How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent
earnings. First-time readers should start at the business section later in the report.
Executive summary ----------------------------------------------------------------------------------------------------------------------------------- 3 Key financial data ------------------------------------------------------------------------------------------------------------------------------------- 5 Recent updates ---------------------------------------------------------------------------------------------------------------------------------------- 6
Highlights ------------------------------------------------------------------------------------------------------------------------------------------------------------ 6 Trends and outlook ----------------------------------------------------------------------------------------------------------------------------------- 7
Quarterly trends and results ----------------------------------------------------------------------------------------------------------------------------------- 7 Business ------------------------------------------------------------------------------------------------------------------------------------------------ 15
Business model --------------------------------------------------------------------------------------------------------------------------------------------------- 15 Market and value chain ---------------------------------------------------------------------------------------------------------------------------------------- 20 Competitors ------------------------------------------------------------------------------------------------------------------------------------------------------- 21 Strengths and weaknesses ------------------------------------------------------------------------------------------------------------------------------------ 23
Historical results and financial statements -------------------------------------------------------------------------------------------------- 24 Income statement ----------------------------------------------------------------------------------------------------------------------------------------------- 24 Balance sheet ----------------------------------------------------------------------------------------------------------------------------------------------------- 25 Cash flow statement -------------------------------------------------------------------------------------------------------------------------------------------- 26 Historical performance ---------------------------------------------------------------------------------------------------------------------------------------- 28
Other information ---------------------------------------------------------------------------------------------------------------------------------- 34 History -------------------------------------------------------------------------------------------------------------------------------------------------------------- 34 News and topics ------------------------------------------------------------------------------------------------------------------------------------------------- 35 Corporate governance and top management --------------------------------------------------------------------------------------------------------- 35 Dividend policy -------------------------------------------------------------------------------------------------------------------------------------------------- 36 Major shareholders --------------------------------------------------------------------------------------------------------------------------------------------- 36 Employees --------------------------------------------------------------------------------------------------------------------------------------------------------- 36 Key group companies ------------------------------------------------------------------------------------------------------------------------------------------ 37 Profile ---------------------------------------------------------------------------------------------------------------------------------------------------------------- 37
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Executive summary
Business overview
◤ ARATA CORPORATION mainly wholesales everyday items and cosmetics, which it buys from manufacturers. The goods are
delivered to the company’s logistics centers, where they are sorted and dispatched to retailers to whom they are sold. It is
one of just two major Japanese wholesalers specializing in everyday items, the other being PALTAC (TSE1: 8283). These two
companies have a combined market share of nearly 50%. ARATA handles around 120,000 items such as cosmetics (Health &
Beauty product category), detergents, and paper products bought from some 1,600 Japanese and overseas manufacturers.
The company wholesales these products to Japanese retailers (around 55,000 stores operated by 5,000 companies, including
almost all domestic drugstores, supermarkets, and DIY centers according to its 2018 Integrated Report). We estimate that
ARATA’s sales, exceeding JPY700.0bn, would be more than JPY900.0bn on a retail basis (converted to instore retail prices),
and the volume of items it handles is equivalent to that of top-10-ranking retailers in Japan. Upon receiving an order from a
retailer, the company’s role is to deliver the right quantity of the right products to the right location at the right time.
◤ Over the past five years, the company’s GPM trended slightly over 10%. Shared Research thinks the company has four major
sources of added value: First, it has the logistics capabilities to respond accurately to small-lot orders. Second, because the
company handles such a wide range of items, it can serve as a one-stop wholesaler. Third, the company can offer proposals
that connect manufacturer promotions with instore retail methods. Fourth, the company has a vast store of transaction data,
which it sometimes sells to retailers and manufacturers.
◤ ARATA was formed in 2002 as a result of the business combination of three wholesalers. The company thinks of the first 15
years since its formation as its first stage, and positions FY03/18 to FY03/20, the period of its current medium-term
management plan, as the time for stepping up to the second stage of growth. During this stage, it intends to pursue new
possibilities in the wholesaling industry. To this end, it plans to 1) boost GPM by expanding sales in highly profitable
merchandise, 2) strengthen business targeting overseas markets, 3) expand e-commerce, 4) improve logistics efficiency, and
5) make better use of information.
Trends and outlook
◤ In FY03/19, sales were JPY754.4bn (+2.9% YoY), operating profit was JPY8.9bn (+0.4% YoY), and net income was JP6.9bn
(+8.5% YoY). Sales to drugstores (48.6% share) were up 4.9% YoY, sales to supermarkets (12.3% share) were up 0.8% YoY,
and sales to discount stores (7.3% share) were up 4.5% YoY. In contrast, sales to GMS (5.4% share) were down 4.1% YoY and
sales to DIY centers (16.4% share) grew only 0.2% YoY. GPM fell slightly from 10.43% in FY03/18 to 10.36% in FY03/19, but
gross profit was up 2.3% YoY. Operating profit increased slightly, because SG&A expenses were up 2.5% YoY, mainly due to a
rise in transportation costs.
◤ FY03/20 company forecasts are sales of JPY771.0bn (+2.2% YoY), operating profit of JPY9.3bn (+4.6% YoY), net income of
JPY6.5bn (-5.8% YoY), and EPS of JPY374.5. The company plans to expand sales with a focus on selling highly profitable items
with high added value (cosmetics, pet goods, home goods) to increase its GPM.
◤ FY03/20 is the final year of the company’s medium-term management plan, which started in FY03/18. In May 2018, ARATA
raised its final year targets to sales of JPY780.0bn (from JPY760.0bn), recurring profit of JPY10.5bn (from 10.0bn), and net
income of JPY6.8bn (from JPY6.5bn), but now does not expect to attain these values. The company commented that it plans
to continue strengthening the functions it has built so far and developing new businesses so that it can transition effectively to
the next medium-term plan starting in FY03/21.
Strengths and weaknesses
Shared Research thinks the company’s strengths are: 1) the logistics capabilities to deliver the right quantity of the right products
to the right location at the right time, 2) the ability to advise retailers about how to create highly effective retail spaces, and 3)
the information it accumulated leveraging handling volume that would rank the company as a top-10 retailer on an instore retail
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price conversion basis (based on Shared Research estimates). We believe ARATA’s weakness are its 1) relatively high logistics
costs owing to its history of business combinations, 2) weak development capabilities overseas, where the company sees
upstream and downstream growth opportunities, and 3) limited ability to respond to changing commercial channels amid the
spread of e-commerce (see “Strengths and weaknesses” section for more details).
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Key financial data
Source: Shared Research based on company data; per-share information has been adjusted for a stock split
Income statement FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est.Sales 601,949 606,705 616,327 651,954 638,792 676,743 704,610 732,914 754,447 771,000
YoY 2.0% 0.8% 1.6% 5.8% -2.0% 5.9% 4.1% 4.0% 2.9% 2.2%Gross profit 76,327 69,033 64,286 66,730 64,613 70,731 73,068 76,475 78,197
YoY 0.0% -9.6% -6.9% 3.8% -3.2% 9.5% 3.3% 4.7% 2.3% GPM 12.7% 11.4% 10.4% 10.2% 10.1% 10.5% 10.4% 10.4% 10.4%
SG&A expenses 76,041 64,859 60,560 62,258 62,152 65,032 65,684 67,618 69,305 YoY -0.3% -14.7% -6.6% 2.8% -0.2% 4.6% 1.0% 2.9% 2.5% SG&A ratio 12.6% 10.7% 9.8% 9.5% 9.7% 9.6% 9.3% 9.2% 9.2%
Operating profit 286 4,174 3,726 4,472 2,461 5,699 7,384 8,857 8,892 9,300 YoY 302.8% - -10.7% 20.0% -45.0% 131.6% 29.6% 19.9% 0.4% 4.6%OPM 0.0% 0.7% 0.6% 0.7% 0.4% 0.8% 1.0% 1.2% 1.2% 1.2%
Recurring profit 4,257 3,915 3,605 4,388 2,469 5,811 7,842 9,439 9,429 10,000 YoY 9.5% -8.0% -7.9% 21.7% -43.7% 135.4% 35.0% 20.4% -0.1% 6.1%RPM 0.7% 0.6% 0.6% 0.7% 0.4% 0.9% 1.1% 1.3% 1.2% 1.3%
Net income 1,015 1,628 1,768 2,435 1,124 3,244 4,863 6,361 6,903 6,500 YoY -21.6% 60.4% 8.6% 37.7% -53.8% 188.6% 49.9% 30.8% 8.5% -5.8%Net margin 0.2% 0.3% 0.3% 0.4% 0.2% 0.5% 0.7% 0.9% 0.9% 0.8%
Per share data (split-adjusted; JPY) 15.4 15.4 15.4 15.4 15.4 15.4 14.7 16.7 17.7 -
EPS 67.6 105.6 114.7 158.0 73.0 210.4 331.0 399.1 397.7 374.5 EPS (fully diluted) - - - - - - 294.9 377.8 381.2 - Dividend per share 35.0 40.0 40.0 50.0 50.0 55.0 65.0 75.0 80.0 85.0 Book value per share 2,960 3,068 3,180 3,309 3,496 3,628 4,055 4,285 4,547 - Balance sheet (JPYmn)
Cash and cash equivalent 9,640 9,985 8,108 10,965 11,800 14,119 13,693 17,826 19,798 Total current assets 132,911 143,020 145,806 158,015 143,906 151,873 153,455 172,149 175,156 Tangible fixed assets 44,034 44,897 45,980 48,772 51,896 50,841 50,248 51,041 49,022 Investments and other assets 10,083 10,332 10,804 10,124 11,890 13,194 15,695 17,696 15,776 Intangible fixed assets 4,511 4,255 4,108 4,289 4,147 3,781 3,576 3,495 3,659 Total assets 191,541 202,506 206,699 221,202 211,840 219,689 222,974 244,381 243,614
Short-term debt 41,315 42,934 35,380 37,069 35,271 38,017 28,147 32,653 17,945 Total current liabilities 111,230 115,798 116,515 122,910 122,414 129,756 124,003 145,831 129,829
Long-term debt 24,331 29,042 30,904 38,048 27,157 24,215 27,930 14,648 21,861 Total fixed liabilities 34,646 39,384 41,140 47,251 35,515 33,992 39,358 27,078 33,269 Total liabilities 145,876 155,182 157,655 170,161 157,929 163,748 163,361 172,909 163,099
Shareholders' equity (adjusted) 45,646 47,306 49,023 51,017 53,897 55,923 59,605 71,462 80,499 Total net assets 45,665 47,324 49,044 51,041 53,911 55,941 59,613 71,472 80,515 Total interest-bearing debt 62,384 68,707 62,566 70,872 58,637 58,982 52,569 43,640 36,524 Statement of cash flows (JPYmn) Cash flows from operating activities 1,919 -720 9,959 1,481 21,955 7,594 12,637 11,649 9,513 Cash flows from investing activities -3,227 -4,575 -4,054 -5,878 -6,775 -3,360 -3,155 -2,924 -880 Cash flows from financing activities 2,697 5,257 -7,699 7,246 -13,990 -1,791 -9,948 -4,501 -6,678 Finantial ratios ROA (RP-based) 2.3% 2.0% 1.8% 2.1% 1.1% 2.7% 3.5% 4.0% 3.9% ROE 2.2% 3.5% 3.7% 4.9% 2.1% 5.9% 8.4% 9.7% 9.1%
Equity ratio 23.8% 23.4% 23.7% 23.1% 25.4% 25.5% 26.7% 29.2% 33.0% Total asset turnover 321.2% 307.9% 301.2% 304.7% 295.0% 313.6% 318.4% 313.6% 309.2% Net margin 0.2% 0.3% 0.3% 0.4% 0.2% 0.5% 0.7% 0.9% 0.9%
Equity ratio 23.8% 23.4% 23.7% 23.1% 25.4% 25.5% 26.7% 29.2% 33.0%
Shares outstanding (ex. treasury shares; mn)
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Recent updates
Highlights On March 30, 2020, Shared Research updated the report following interviews with ARATA CORPORATION.
Main points from the interview are outlined as follows:
1) Due to the spread of the novel coronavirus, some product groups are generating more demand than planned. These items
mainly include a) those related to prevention of infections (e.g., face masks, alcohol disinfectants, and hand soaps), and b)
paper goods such as toilet paper, tissue paper, and wet wipes. These trends have been seen not only in the company’s
mainstay business selling to drugstores, but also in its sales to home improvement stores, supermarkets/general merchandise
stores, and discount stores. The supply system for paper goods has already stabilized after experiencing a temporary surge in
demand due to hoarding. However, it is still difficult to secure a sufficient number of face masks to meet demand, and
manufacturer production capacity of alcohol disinfectants and hand soaps is limited. It is currently not possible to procure
these goods in quantities that meet the demands of retailers.
2) The company says that sales in its areas of focus, such as Health and Beauty (including cosmetics), have been strong.
Although the number of foreign visitors to Japan is decreasing due to the spread of the novel coronavirus, the company
expects the impact on its earnings to be minor since many of its products target domestic consumers.
3) Logistics costs seem to be higher than planned, affected by a temporary increase in demand for products with low
transportation efficiency (low sales and gross margin per product volume) such as toilet paper. However, the increase in
logistics costs is likely to be offset by the rise in gross profit.
On February 25, 2020, Shared Research updated the report following interviews with the company.
On February 5, 2020, the company announced earnings results for Q3 FY03/20; see the results section for details.
For previous releases and developments, please refer to the “News and topics” section.
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Trends and outlook
Quarterly trends and results
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Cumulative(JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 % of FY FY Est.Sales 183,701 369,766 559,985 732,914 191,872 381,081 578,125 754,447 195,393 406,341 601,901 78.1% 771,000
YoY 3.5% 4.0% 3.8% 4.0% 4.4% 3.1% 3.2% 2.9% 1.8% 6.6% 4.1% 2.2%Gross profit 19,228 38,266 57,923 76,475 19,865 39,204 59,427 78,198 20,295 41,435 61,766
YoY 5.5% 4.6% 4.3% 4.7% 3.3% 2.5% 2.6% 2.3% 2.2% 5.7% 3.9% GPM 10.5% 10.3% 10.3% 10.4% 10.4% 10.3% 10.3% 10.4% 10.4% 10.2% 10.3%
SG&A expenses 16,771 33,793 50,996 67,618 17,379 34,726 52,499 69,306 17,804 36,399 54,512 YoY 3.6% 2.8% 3.0% 2.9% 3.6% 2.8% 2.9% 2.5% 2.4% 4.8% 3.8% SG&A ratio 9.1% 9.1% 9.1% 9.2% 9.1% 9.1% 9.1% 9.2% 9.1% 9.0% 9.1%
Operating profit 2,457 4,473 6,927 8,857 2,486 4,478 6,928 8,892 2,491 5,036 7,254 78.0% 9,300YoY 20.3% 20.8% 15.1% 19.9% 1.2% 0.1% 0.0% 0.4% 0.2% 12.5% 4.7% 4.6%OPM 1.3% 1.2% 1.2% 1.2% 1.3% 1.2% 1.2% 1.2% 1.3% 1.2% 1.2% 1.2%
Recurring profit 2,701 4,844 7,424 9,439 2,551 4,673 7,285 9,429 2,693 5,403 7,940 79.4% 10,000YoY 23.2% 23.9% 16.1% 20.4% -5.6% -3.5% -1.9% -0.1% 5.6% 15.6% 9.0% 6.1%RPM 1.5% 1.3% 1.3% 1.3% 1.3% 1.2% 1.3% 1.2% 1.4% 1.3% 1.3% 1.3%
Net income 1,795 3,231 5,205 6,361 1,760 3,332 5,208 6,903 2,070 3,861 5,827 89.6% 6,500YoY 36.5% 32.8% 34.1% 30.8% -1.9% 3.1% 0.1% 8.5% 17.6% 15.9% 11.9% -5.8%Net margin 1.0% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 1.1% 1.0% 1.0% 0.8%
Quarterly(JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3Sales 183,701 186,065 190,219 172,929 191,872 189,209 197,044 176,322 195,393 210,948 195,560
YoY 3.5% 4.4% 3.4% 4.8% 4.4% 1.7% 3.6% 2.0% 1.8% 11.5% -0.8%Gross profit 19,228 19,038 19,657 18,552 19,865 19,339 20,223 18,771 20,295 21,140 20,331
YoY 5.5% 3.8% 3.7% 5.8% 3.3% 1.6% 2.9% 1.2% 2.2% 9.3% 0.5%GPM 10.5% 10.2% 10.3% 10.7% 10.4% 10.2% 10.3% 10.6% 10.4% 10.0% 10.4%
SG&A expenses 16,771 17,022 17,203 16,622 17,379 17,347 17,773 16,807 17,804 18,595 18,113YoY 3.6% 2.0% 3.3% 2.9% 3.6% 1.9% 3.3% 1.1% 2.4% 7.2% 1.9%SG&A ratio 9.1% 9.1% 9.0% 9.6% 9.1% 9.2% 9.0% 9.5% 9.1% 8.8% 9.3%
Operating profit 2,457 2,016 2,454 1,930 2,486 1,992 2,450 1,964 2,491 2,545 2,218YoY 20.3% 21.4% 6.1% 41.1% 1.2% -1.2% -0.2% 1.8% 0.2% 27.8% -9.5%OPM 1.3% 1.1% 1.3% 1.1% 1.3% 1.1% 1.2% 1.1% 1.3% 1.2% 1.1%
Recurring profit 2,701 2,143 2,580 2,015 2,551 2,122 2,612 2,144 2,693 2,710 2,537YoY 23.2% 24.8% 3.9% 39.1% -5.6% -1.0% 1.2% 6.4% 5.6% 27.7% -2.9%RPM 1.5% 1.2% 1.4% 1.2% 1.3% 1.1% 1.3% 1.2% 1.4% 1.3% 1.3%
Net income 1,795 1,436 1,974 1,156 1,760 1,572 1,876 1,695 2,070 1,791 1,966YoY 36.5% 28.4% 36.3% 17.7% -1.9% 9.5% -5.0% 46.6% 17.6% 13.9% 4.8%Net margin 1.0% 0.8% 1.0% 0.7% 0.9% 0.8% 1.0% 1.0% 1.1% 0.8% 1.0%
FY03/20
FY03/20
FY03/20FY03/18 FY03/19
FY03/18 FY03/19
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Cumulative Q3 FY03/20 results (announced February 5, 2020)
Summary
▷ Cumulative Q3 results: Sales were JPY601.9bn (+4.1% YoY), operating profit was JPY7.3bn (+4.7% YoY), recurring profit was
JPY7.9bn (+9.0% YoY) and net income attributable to owners of the parent was JPY5.8bn (+11.9% YoY). Cumulative Q3 sales
improved YoY despite a tough operating environment in Q3, including a slump in of seasonal products due to a relatively
warm winter and a reactionary decline in demand following last-minute spending ahead of the consumption tax hike.
Distribution-related expenses increased in accordance with higher sales, but the company’s ability to curtail the rise in indirect
expenses contributed to operating profit growth. The company has made no changes to its full-year FY03/20 forecasts.
Cumulative Q3 progress rates against full-year forecasts were 78.1% for sales (76.6% in cumulative Q3 FY3/19), 78.0% for
operating profit (77.9%), and 89.6% for net income (75.4%).
▷ Q3 (October–December) results: Q3 sales were JPY195.6bn (-0.8% YoY), operating profit was JPY2.2bn (-9.5% YoY), and net
income was JPY2.0bn (+4.8% YoY). Sales tracked above prior-year levels through the first half of October, supported by orders
from retailers (drugstores and so forth) whose inventories had been depleted by rush demand at end-September, ahead of the
October consumption tax hike. From the second half of October, sales fell below the previous year’s levels owing to a
snapback decline in demand, but December sales were on par with the year-earlier level, according to the company. This
seems to suggest that the consumption tax hike no longer is impacting demand. The Q3 gross profit margin of 10.4% was
above the previous year’s 10.3%, as the higher consumption tax rate appears to have had little impact on transaction prices,
and moreover there was an increase in the sales weighting of the Health & Beauty segment (which includes high value-added,
profitable merchandise such as cosmetics). SG&A expenses were 1.9% higher YoY, due to increases in personnel and logistics
expenditure, and the ratio of SG&A expenses to sales rose to 9.3% from 9.0% a year earlier.
▷ Sales by customer type: Q3 sales were up 1.8% YoY to JPY96.5bn to mainstay drugstores, down 5.4% YoY to JPY31.2bn to DIY
centers, down 2.4% YoY to JPY24.1bn to supermarkets, up 0.5% YoY to JPY14.8bn to discount stores, and down 4.6% YoY to
JPY10.2bn to GMS. In the “Other” category (including online retailers and cross-border e-commerce businesses), sales were
down 2.1% YoY to JPY18.7bn. The increase in sales to drugstores continued even amid sluggish demand after the
consumption tax hike, and was due in part to higher sales of cosmetics to chains that previously handled only a small volume of
such products.
▷ Sales by product category: Sales in Q3 were up 3.8% YoY to JPY63.4bn in Health & Beauty, which includes cosmetics,
pharmaceuticals, and oral care products, down 2.6% YoY to JPY28.5bn in Household, which includes clothing and kitchen
detergents, down 0.1% YoY to JPY13.2bn in Home Care, which includes fragrances, deodorants, and insect repellants, down
4.3% YoY to JPY37.4bn in Paper Products, which includes diapers and toilet paper, down 8.5% YoY to JPY15.0bn in Home
Goods, which includes kitchen supplies and toiletries, and essentially flat (+0.0% YoY) at JPY38.2bn in Pet Goods/Other.
Increased business with drugstores contributed to growth in Health & Beauty sales.
▷ Industry realignment: Consolidation is ongoing in the drugstore industry, which is a key sales channel for Arata. In January 2020,
Matsumotokiyoshi Holdings (3088, TSE-1) and Cocokara Fine (3098, TSE-1) signed an agreement concerning a business and
capital alliance in the lead-up to a merger that is scheduled to take place in October 2021. Shared Research understands that
Arata is a leading supplier for Cocokara Fine, but has limited dealings with Matsumotokiyoshi in Japan. Arata regards this kind of
industry consolidation as an opportunity to secure new business and further increase its exposure to the drugstore sector.
Cocokara Fine also has plans to form a business alliance with H2O Retailing (8242, TSE-1), and form a joint venture with H2O
Retailing subsidiary Izumiya Co., Ltd., to sell pharmaceuticals, cosmetics, and so forth. This, too, has potential to boost Arata’s
market share.
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▷ Next medium-term business plan: Arata is expected to unveil a new business plan in May 2020, as FY03/20 is the final year of
the current medium-term plan. Growth strategies for the next ten years are likely to be a key focus of the new business plan.
Seasonality: Sales and operating profit tend to be higher in Q3 (October–December) than in the other quarters, because product volume increases due
to the year-end holiday shopping season and other factors.
Sales by customer type
Source: Shared Research based on company data Note: The company revised its breakdown of sales by customer type in FY03/19. Figures may differ from company materials due to differences in rounding methods.
Sales by product category and customer type
Source: Shared Research based on company data Note: The company revised its sales breakdown by customer type in FY03/19. Figures may differ from company materials due to differences in rounding methods.
SG&A expenses
Source: Shared Research based on company data
For details on previous quarterly and annual results, please refer to the “Historical financial statements” section.
Sales by customer typeQuarterly (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3Total sales 183,701 186,065 190,219 172,929 191,872 189,209 197,044 176,322 195,393 210,948 195,560
YoY 3.5% 4.4% 3.4% 4.8% 4.4% 1.7% 3.6% 2.0% 1.8% 11.5% -0.8%Drugstores 88,212 88,391 88,906 84,431 93,147 91,706 94,810 87,345 96,433 101,650 96,511
YoY 5.9% 5.4% 4.5% 6.8% 5.6% 3.8% 6.6% 3.5% 2.7% 10.8% 1.8%% of total sales 48.0% 47.5% 46.7% 48.8% 48.5% 48.5% 48.1% 49.5% 49.4% 48.2% 49.4%
DIY centers 31,197 31,586 33,463 27,312 32,555 31,535 32,940 26,799 31,830 34,064 31,168 YoY 2.4% 4.7% 5.1% 8.7% 4.4% -0.2% -1.6% -1.9% -2.6% 8.0% -5.4%% of total sales 17.0% 17.0% 17.6% 15.8% 17.0% 16.7% 16.7% 15.2% 16.3% 16.1% 15.9%
Supermarkets 23,123 23,486 24,168 21,487 23,202 23,267 24,697 21,877 23,368 26,250 24,107 YoY 5.7% 4.7% 2.9% 4.2% 0.3% -0.9% 2.2% 1.8% -0.8% 12.8% -2.4%% of total sales 12.6% 12.6% 12.7% 12.4% 12.1% 12.3% 12.5% 12.4% 12.0% 12.4% 12.3%
Discount stores 13,364 13,496 14,120 12,074 13,539 14,102 14,733 13,074 14,328 16,124 14,800 YoY 5.6% 4.9% 5.4% 2.7% 1.3% 4.5% 4.3% 8.3% 5.0% 14.3% 0.5%% of total sales 7.3% 7.3% 7.4% 7.0% 7.1% 7.5% 7.5% 7.4% 7.3% 7.6% 7.6%
General merchandising stores (GMS) 11,000 10,848 10,945 9,764 10,417 10,160 10,744 9,497 10,431 10,978 10,245 YoY -2.9% -3.9% -12.3% -18.5% -5.3% -6.3% -1.8% -2.7% 0.6% 8.1% -4.6%% of total sales 6.0% 5.8% 5.8% 5.6% 5.4% 5.4% 5.5% 5.4% 5.3% 5.2% 5.2%
Other 16,805 18,258 18,617 17,861 19,012 18,439 19,120 17,730 19,001 21,884 18,727 YoY -6.0% 4.3% 5.3% 8.2% 13.1% 1.0% 2.7% -0.7% 7.0% 18.7% -2.1%% of total sales 9.1% 9.8% 9.8% 10.3% 9.9% 9.7% 9.7% 10.1% 9.7% 10.4% 9.6%
FY03/20FY03/18 FY03/19
Sales by categoryQuarterly (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3Total sales 183,701 186,065 190,219 172,929 191,872 189,209 197,044 176,322 195,393 210,948 195,560
YoY 3.5% 4.4% 3.4% 4.8% 4.4% 1.7% 3.6% 2.0% 1.8% 11.5% -0.8%Health & Beauty 53,528 56,684 58,726 54,862 58,529 58,790 61,024 56,083 60,927 65,560 63,373
YoY - - - - 9.3% 3.7% 3.9% 2.2% 2.9% 11.5% 3.8%% of total sales 29.1% 30.5% 30.9% 31.7% 30.5% 31.1% 31.0% 31.8% 31.2% 31.1% 32.4%
Household 25,442 25,817 27,291 22,349 26,469 26,510 29,220 23,307 27,702 30,460 28,471 YoY - - - - 4.0% 2.7% 7.1% 4.3% 4.6% 14.9% -2.6%% of total sales 13.8% 13.9% 14.3% 12.9% 13.8% 14.0% 14.8% 13.2% 14.2% 14.4% 14.6%
Home Care 21,985 19,134 13,255 16,179 22,093 18,038 13,207 15,841 20,911 19,488 13,194 YoY - - - - 0.5% -5.7% -0.4% -2.1% -5.5% 8.0% -0.1%% of total sales 12.0% 10.3% 7.0% 9.4% 11.5% 9.5% 6.7% 9.0% 10.7% 9.2% 6.7%
Paper Products 36,842 36,081 38,307 35,937 36,420 35,490 39,100 36,193 36,967 42,302 37,408 YoY - - - - -1.1% -1.6% 2.1% 0.7% 1.4% 19.2% -4.3%% of total sales 20.1% 19.4% 20.1% 20.8% 19.0% 18.8% 19.8% 20.5% 18.9% 20.1% 19.1%
Home Goods 12,334 13,645 15,588 12,515 13,050 14,575 16,349 12,657 12,794 14,802 14,954 YoY - - - - 5.8% 6.8% 4.9% 1.1% 5.3% 1.6% -8.5%% of total sales 6.7% 7.3% 8.2% 7.2% 6.8% 7.7% 8.3% 7.2% 6.5% 7.0% 7.6%
Pet Goods, other 33,569 34,703 37,051 31,090 35,311 35,806 38,144 32,238 36,089 38,336 38,161 YoY - - - - 5.2% 3.2% 2.9% 3.7% 1.9% 7.1% 0.0%% of total sales 18.3% 18.7% 19.5% 18.0% 18.4% 18.9% 19.4% 18.3% 18.5% 18.2% 19.5%
FY03/20FY03/18 FY03/19
SG&A expensesQuarterly (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3SG&A expenses 16,771 17,022 17,203 16,622 17,379 17,347 17,773 16,807 17,804 18,595 18,113
YoY 3.6% 2.0% 3.3% 2.9% 3.6% 1.9% 3.3% 1.1% 2.4% 7.2% 1.9%4,647 4,722 4,939 4,526 4,967 5,000 5,394 4,894 5,281 5,690 5,482
YoY 6.0% 6.7% 5.2% 3.3% 6.9% 5.9% 9.2% 8.1% 0.0% 13.8% 1.6%3,585 3,682 3,807 3,488 3,788 3,843 4,073 3,667 3,962 4,326 4,159
YoY 6.2% 8.2% 5.5% 5.6% 5.7% 4.4% 7.0% 5.1% 0.0% 12.6% 2.1%Distribution outsourcing 927 914 958 898 1,018 1,032 1,153 1,090 1,151 1,204 1,178
YoY 6.2% 3.3% 2.6% 6.3% 9.8% 12.9% 20.4% 21.4% 0.0% 16.7% 2.2%Packing supplies 134 126 174 141 160 125 169 136 168 159 145
YoY 2.3% -8.7% 13.7% -39.5% 19.4% -0.8% -2.9% -3.5% 0.0% 27.2% -14.2%Personnel expenses 7,371 7,626 7,468 7,371 7,547 7,474 7,500 7,164 7,579 7,959 7,690
YoY 3.4% 1.5% 2.0% 2.8% 2.4% -2.0% 0.4% -2.8% 0.0% 6.5% 2.5%Other expenses 4,753 4,674 4,796 4,725 4,865 4,873 4,879 4,749 4,944 4,946 4,941
YoY 1.6% -1.4% 3.5% 2.6% 2.4% 4.3% 1.7% 0.5% 0.0% 1.5% 1.3%
Transportation and warehousing
Packing and transportation expenses
FY03/18 FY03/19 FY03/20
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Full-year company forecasts
Source: Shared Research based on company data
FY03/20 company forecasts are sales of JPY771.0bn (+2.2% YoY), operating profit of JPY9.3bn (+4.6% YoY), and net income of
JPY6.5bn (-5.8% YoY). FY03/20 earnings forecasts are difficult, because a consumption tax hike Japan is set to occur during the
fiscal year, which will likely result in a last-minute demand surge followed by a reactionary slump or purchase cutbacks.
The company intends to continue focusing on high value-added, profitable merchandise such as cosmetics, pet goods, and
home goods in FY03/20, targeting over 5% YoY sales growth in Health & Beauty, especially cosmetics, which account for a 30%
share of the category. The company aims to increase sales by collaborating with cosmetics companies to plan and propose
instore promotions to retailers. Following the absorption of wholly owned subsidiary Fashion ARATA on April 1, 2019, the
company set up a cosmetics business unit that reports directly to the president. The establishment of this business unit suggests
that, in terms of organization, the company is working strategically to increase cosmetics sales.
In the Pet Goods category, the company aims to consolidate its No. 1 position in the business through wholly owned subsidiary
Japell Co., Ltd., targeting over 5% YoY sales growth. The company seeks to bring more distributors into the fold by improving
business efficiency. It aims to achieve this feat by transferring a portion of business from the parent and harnessing its strengths,
including a diverse product range and an ability to design retail spaces. In Home Goods, the merchandise has relatively slow
turnover rates in stores, but the company has a lineup of merchandise needed by drugstores and supermarkets. The company
aims to increase market share by harnessing its ability to make proposals to retailers based on data analysis (a relatively new trend
in this product category) to win bulk orders from retailers for greater efficiency.
The company aims to lift OPM and raise GPM by around 0.1pp by increasing sales of relatively profitable products to absorb
higher SG&A expenses (such as increased distribution expenses).
Initial company forecast and results
Source: Shared Research based on company data
(JPYmn) 1H 2H FY 1H 2H FY 1H Act. 2H Est. FY Est.Sales 369,766 363,148 732,914 381,081 373,366 754,447 406,341 364,659 771,000
YoY 4.0% 4.1% 4.0% 3.1% 2.8% 2.9% 6.6% -2.3% 2.2%Cost of sales 331,500 324,939 656,439 341,877 334,372 676,249 364,906 Gross profit 38,266 38,209 76,475 39,204 38,994 78,198 41,435
YoY 4.6% 4.7% 4.7% 2.5% 2.1% 2.3% 5.7% GPM 10.3% 10.5% 10.4% 10.3% 10.4% 10.4% 10.2%
SG&A expenses 33,793 33,825 67,618 34,726 34,580 69,306 36,399 YoY 2.8% 3.1% 2.9% 2.8% 2.2% 2.5% 4.8% SG&A ratio 9.1% 9.3% 9.2% 9.1% 9.3% 9.2% 9.0%
Operating profit 4,473 4,384 8,857 4,478 4,414 8,892 5,036 4,264 9,300 YoY 20.8% 19.1% 19.9% 0.1% 0.7% 0.4% 12.5% -3.4% 4.6%OPM 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2%
Recurring profit 4,844 4,595 9,439 4,673 4,756 9,429 5,403 4,597 10,000 YoY 23.9% 16.9% 20.4% -3.5% 3.5% -0.1% 15.6% -3.3% 6.1%RPM 1.3% 1.3% 1.3% 1.2% 1.3% 1.2% 1.3% 1.3% 1.3%
Net income 3,231 3,130 6,361 3,332 3,571 6,903 3,861 2,639 6,500 YoY 32.8% 28.8% 30.8% 3.1% 14.1% 8.5% 15.9% -26.1% -5.8%Net margin 0.9% 0.9% 0.9% 0.9% 1.0% 0.9% 1.0% 0.7% 0.8%
FY03/19 FY03/20FY03/18
Results vs. Initial Est. FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.
Sales (Initial Est.) 600,000 609,000 628,000 622,000 640,000 643,000 679,000 719,000 760,000Sales (Results) 601,949 606,705 616,327 651,954 638,792 676,743 704,610 732,914 754,447
Results vs. Initial Est. 0.3% -0.4% -1.9% 4.8% -0.2% 5.2% 3.8% 1.9% -0.7%Operating profit (Initial Est.) 1,200 400 - 4,700 4,550 4,250 6,600 8,100 9,700Operating profit (Results) 286 4,174 3,726 4,472 2,461 5,699 7,384 8,857 8,892
Results vs. Initial Est. -76.2% 943.5% - -4.9% -45.9% 34.1% 11.9% 9.3% -8.3%Recurring profit (Initial Est.) 4,700 4,300 4,800 4,400 4,400 4,300 6,700 8,300 10,000Recurring profit (Results) 4,257 3,915 3,605 4,388 2,469 5,811 7,842 9,439 9,429
Results vs. Initial Est. -9.4% -9.0% -24.9% -0.3% -43.9% 35.1% 17.0% 13.7% -5.7%Net income (Initial Est.) 1,500 1,440 2,000 1,900 1,900 1,900 3,600 5,200 6,500Net income (Results) 1,015 1,628 1,768 2,435 1,124 3,244 4,863 6,361 6,903
Results vs. Initial Est. -32.3% 13.1% -11.6% 28.2% -40.8% 70.7% 35.1% 22.3% 6.2%
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Medium-term outlook
Overview The company announced its current medium-term management plan (FY03/18 to FY03/20) in May 2017. The plan targets sales of
JPY760.0bn (CAGR of 2.6%, based on FY03/17 figures), recurring profit of JPY10.0bn (8.4%), net income of JPY6.0bn (7.3%), and
ROE of around 9% (8.4% in FY03/17). Performance was above target in FY03/18, and the company expects to hit the plan’s
recurring profit target of JPY10.0bn in FY03/19. Given these results, in May 2018, the company upped the plan’s targets to sales
of JPY780.0bn, recurring profit of JPY10.5bn, and net income of JPY6.8bn. The company made small adjustments to its FY03/20
forecasts (sales: JPY771.0bn, recurring profit: JPY10.0bn, and net income: JPY6.5bn), but no major change in management
strategy.
ARATA was formed in 2002 as a result of the business combination of three wholesalers. The medium-term management plans
formulated since then had focused on “strengthening the foundation,” along with themes such as increasing profits, improving
operations, and integrating and unifying the company. Having been through several such plans, the company believes it now has
a relatively solid foundation in place and is using “first stage” as a catch-all phrase for initiatives to date. It is positioning the
current plan as the start of the “second stage,” a period for “pursuing new possibilities in the wholesale business while looking a
decade ahead.” The three key points of this stage are to 1) “continue to draw a growth strategy,” 2) “lay the groundwork for the
future,” and 3) “further strengthen the business foundation.”
1) “Continue to draw a growth strategy” This strategy indicates how the company plans to grow its core business of wholesaling in Japan. The company plans to
concentrate on expanding business in three product categories: health and beauty (including cosmetics, hair care, and body care
products), home goods, and pet goods.
Health & Beauty
In this category, the company plans to focus specifically on cosmetics. The company says it is particularly competitive in
wholesaling cosmetics and has earned a high degree of trust from cosmetics manufacturers and drugstores that sell cosmetics,
which have a relatively high GPM. With the percentage of women working outside the home on the rise in Japan, the company
aims to step up sales efforts to “meet the needs of the time-crunched working woman.” To this end, it strengthened
collaboration with Fashion Arata (a subsidiary the company absorbed in April 2019) and plans to bolster sales through sales
activities that harness specialist knowledge. The company already handles over-the-counter drugs, but believes that ample room
for growth still exists. The company plans to enlarge this business in tandem with market growth, which it believes will expand as
the Japanese population ages and emphasis on self-medication increases.
Home Goods
In this category, the company has a market share of more than 10%, which it plans to increase further. Numerous wholesalers
handle home goods, and some are specialized wholesalers focusing on specific types of home goods. However, few general
wholesalers offer a wide range of home goods, and few companies cover a broad range of fields on a nationwide scale. ARATA
thus believes it can leverage its strengths as a general wholesaler with nationwide coverage. Supermarkets and other retailers
benefit from being able to place consolidated orders for all the non-food items they need.
Pet Goods
The company is strengthening its presence in items for pets via Japell, a subsidiary. Operations had overlapped, as Japell was a
leading wholesaler of pet goods, which ARATA (parent) also handled. The company has concentrated the handling of all
pet-related items at Japell. ARATA is also working with its subsidiary on strengthening the ability to make integrated proposals
regarding pets and pet-related goods to retailers. It aims to provide end-to-end support for the creation of retail spaces
dedicated to pets, adopting a captive selling strategy.
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Strengthening operations in Kyushu, Tokyo, Nagoya, and Osaka
The company is working to strengthen operations in the regions of Kyushu, Tokyo, Nagoya, and Osaka. The company has bases
across most of Japan. It considers the ability to respond to the needs of regional customers to be one of its strengths. However, to
date the company has covered the entire Kyushu region in the south of Japan through the Kyushu Kita (north) center in Fukuoka.
From the standpoint of business continuity planning, the company recognizes the need to diversify risks. To do so, the company
built the Kyushu Minami (south) center, which commenced operations in June 2018. This logistics center, which involved total
investment of JPY3.1bn, has an AI-equipped depalletizing robot and was designed to be highly efficient and reduce labor
requirements. With Japan’s population increasingly concentrated in the three main urban areas (Tokyo, Osaka, and Nagoya),
ARATA recognizes a growing need to have logistics networks in place in the area. The need is particularly pronounced in the
Tokyo area. The company estimates that if distribution continues to expand at its recent pace, in a few years, demand will outstrip
its capacity. For that reason, the company is selecting a logistics base, where it intends to begin operations around 2021–2022.
Aiming to make itself essential by providing information to retailers and offering retail space proposals
To meet changing consumer needs, the company intends to provide information to retailers and enhance its retail space
proposals. The company explains that commercial zones are shrinking as Japan’s population ages and becomes increasingly
concentrated in urban areas. At the same time, the products consumers want differ by customer type and commercial area. The
company’s sales exceed JPY700.0bn (converted to instore retail prices, Shared Research estimates retail value of more than
JPY900.0bn), and it possesses associated sales and inventory data. The company is providing retailers with its analyses of big data
and commercial zones and moving forward with proposals on how to respond to shrinking commercial zones. Its aim is to boost
retailers’ sales (and thus the volume of products they procure from ARATA).
2) “Lay the groundwork for the future” The company aims to lay the steppingstones for medium- to long-term expansion by growing beyond its current core business of
wholesaling daily necessities and cosmetics. Specifically, it aims to develop business overseas, respond to online needs, and
strengthen in-house product development (functioning partly like a manufacturer).
Overseas development
The company established a subsidiary in Shanghai in 2011 and one in Thailand in 2013. Despite such overseas developments,
overseas sales account for less than 1% of the total. In China, demand for Japanese cosmetics and other products is growing,
setting the stage for online shopping from overseas. Large manufacturers can export products to China, but small and
medium-sized manufacturers find this more difficult, as they do not have sales networks in place in the country. Sales companies
in China that sell Japanese products find dealing with multiple Japanese companies problematic. If they were to work through
ARATA, although procurement costs would rise to some extent, they would be able to source products from numerous
manufacturers at once; the company intends to capture the demand of such companies. In Thailand, in addition to Japanese
companies based in the country, ARATA plans to expand the number of local retailers it works with.
Online
The company currently handles some online sales, mainly for everyday items and cosmetics, but the scale is less than 1% of total
sales. ARATA plans to gradually expand information systems and distribution functions. By doing so, it thinks it can better
leverage the advantages that come from handling 120,000 items (based on 2018 Integrated Report) by meeting demand for
products that are well suited for online sales because they are heavy, bulky, or handled by few stores. The company plans to look
into ways it can utilize the data on brick-and-mortar stores it has accumulated through the wholesale business and turn it into
useful marketing information for online business operations.
Products developed in-house (private brands)
The company also plans to continue pursuing in-house product development. So far, the company has developed around 350
such products. ARATA maintains a lineup of widely used products to meet retail store demand for products that are economical
and profitable but for which small to mid-size retailers find it difficult to build their own private brands. According to the
company, such products are also attractive for outsourced manufacturers because they help keep manufacturing equipment in
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constant operation. These products therefore foster win–win–win relationships for retailers, manufacturers, and ARATA. The
company plans to also develop high-value-added products that can boost retailers’ unit selling prices.
Main products developed independently and in collaboration
Source: Company materials
3) “Further strengthen the business foundation” The company’s efforts to further strengthen its business foundation involve reinforcing its logistics functions. The company has 11
large logistics centers around Japan, each capable of handling products worth a total shipment value of more than JPY15.0bn per
year. Including these bases, the company operates 32 logistics centers (four in Hokkaido, three in Tohoku, nine in the Tokyo
metro area, four in Chubu, three in Kansai, seven in Shikoku/Chugoku, and two in Kyushu), many of which are small. In general,
large-scale logistics centers tend to be more efficient. ARATA’s recurring profit margin compares unfavorably to that of rival
PALTAC (TSE1: 8283). Since the two companies book expenses differently, it is difficult to decipher the difference based on
annual securities reports and other disclosed data. However, Shared Research considers ARATA’s logistics system (operating
multiple small logistics centers) to be a likely factor contributing to the difference in profitability. (See “Competitors” in the
“Market and value chain” section.) The company opened large-scale logistics centers in Saitama and Chiba in 2008, Ishikari in
2011, Konan in 2013, and Kitakami in 2015, but this number appears insufficient. By continuing to invest in existing logistics
centers, the company aims to increase levels of automation and labor savings, boosting efficiency. It is also considering a new
large-scale logistics center in the Tokyo metro area in response to rising sales there. Strengthening its logistics functions has social
significance as well, notes the company, as it would help ensure a stable supply of everyday items in the event of a large
earthquake or other natural disaster.
Logistics network
Source: Company materials
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Historical medium-term plans
Source: Shared Research based on company data
Medium-term management plans Targets and results (JPYbn) Key initiatives
FY03/05Est. Init. Target Act.
Sales 420.5 520.0 551.8 RP 8.0 9.0 1.9
FY03/07Est. Init. Target Act.
Sales 511.6 557.0 589.9 RP 1.4 4.9 3.9
FY03/09Act. Init. Target Act.
Sales 569.7 600.0 606.7 RP 2.3 5.8 4.3
FY03/11Act. Init. Target Act.
Sales 601.9 650.0 652.0 RP 4.3 8.0 4.4
FY03/14Act. Init. Target Act.
Sales 652.0 670.0 704.6 RP 4.4 6.7 7.8
FY03/17Act. Init. Target Act.
Sales 704.6 760.0 RP 7.8 10.0 Net income 4.9 6.0
FY03/06–FY03/08(out Feb. 2005)
Strengthen wholesale capabilities, and improve financial structure- Enhance expertise in the five major categories- Offer standardized services throughout the nation- Raise market share further in the Kanto and Kansai regions
FY03/08–FY03/10(out Mar. 2007)
Grow into a locally-rooted nationwide wholesaler- Enhance organizational integration and build a low-cost management structure- Further reduce assets to build an efficient business structure- Improve profitability by enhancing wholesale capabilities
FY03/10–FY03/12(out May 2009)
Strengthen ARATA brand- Enhance sales and store-based marketing capabilities- Bolster category management capability through group management- Build a nationwide optimized logistics network- Establish corporate governance structure and enhance management base
FY03/08
FY03/10
FY03/12
FY03/12–FY03/14(out May 2011)
Grow into a next-generation wholesaler- Enhance value-added offerings suitable to a next-generation wholesaler(Improve sales support capabilities collaborating with other industries; expand services for sales and logistics)- Expand and develop markets (promote group synergies; develop overseas businesses)- Renovate cost structure (integrate and optimize internal operations; rebuild group logistics networks)
FY03/15–FY03/17(out May 2014)
Build a new structure for a next-generation wholesaler- Adopt profit management by company to enhance profitability- Bolster product development leveraging ARATA's group-wide sales capabilities and network- Strengthen profitability by enhancing expertise of sales, sales promotion, and store managing groups- Gain earnings through investing management resources in overseas businesses and tighten profitmanagement- Propose products for e-commerce; improve logistics structure- Integrate internal operations to office work center and procurement center to promote reduction of overhead
FY03/18–FY03/20(out May 2017)
ARATA Second Stage: Looking a decade ahead, pursue new possibilities in the wholesale business- Continue formulating growth strategies- Lay the foundation for the future- Further strengthen the management base
FY03/14
FY03/17
FY03/20
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Business
Business model ARATA mainly wholesales everyday items and cosmetics, which it buys from manufacturers. The goods are delivered to the
company’s logistics centers, where they are sorted and dispatched to retailers to whom they are sold. Based on the company’s
2018 Integrated Report, it handles around 120,000 items (such as cosmetics and other Health & Beauty products, detergents,
paper products), which it buys from some 1,600 Japanese and overseas manufacturers. The company wholesales these products
to almost all Japanese retailers (around 55,000 stores operated by 5,000 companies, including drugstores, supermarkets, and DIY
centers). Upon receiving an order from a retailer, the company’s role is to deliver the right quantity of the right products to the
right location at the right time. The company has systems in place to handle detailed customer orders, including orders as small
as a single toothbrush.
Sales exceed JPY700.0bn, which we estimate would be more than JPY900.0bn on a retail basis (converted to instore retail prices).
The volume of items it handles is equivalent to that of top-10-ranking retailers in Japan.
The company breaks down the products it handles into six categories: 1) Health & Beauty (31% of sales in FY3/19): cosmetics,
cosmetic accessories, bathwater additives, body cleansers, hair-care products, oral-care products, and health foods; 2) Paper
Products (20%): baby products, baby diapers, nursing care items, adult diapers, sanitary goods, tissue paper, and toilet paper; 3)
Household (14%): laundry detergent, kitchen cleansers and dish soap, and household cleansers; 4) Home Care (9%): fragrances
and deodorizers, insect repellants, insecticides, incenses and candles for home altars, dry cell batteries and products that use
them, recording media, lighting, electrical products, OA products, and photo-related products; 5) Home Goods (8%): kitchen
consumables, products used on sinks, cleaning supplies, storage supplies, seasonal products, storage products, cooking items,
tabletop items, and picnic supplies; 6) Pet Goods/Other (19%): pet supplies, stationery, toys, and auto products. The company’s
wide range of products excludes foods, apparel, consumer electronics, PCs, and mobile devices, which all vary in distribution
channels.
The company sells its products to drugstores (49% of sales in FY3/19), DIY centers (16%), supermarkets (12%), discount stores
(7%), GMSs (5%), and others (10%). Previously, convenience stores were among its important customers, but this sales channel
has shrunk since Circle K Sunkus and FamilyMart merged and changed their procurement policies. The company does little
business with online retailers, which are in the “Other” category. The company is not highly dependent on any individual
business partner. Tsuruha Holdings (TSE1: 3391) accounted for 13.0% of sales in FY03/19, and is the only company to account
for more than 10%.
Sales mix by product category (left) and sales mix by customer type (right) (FY3/19)
Source: Shared Research based on company data
The company’s GPM is generally between 10% and 11%. The average over the past five years was 10.3%, with 10.5% being the
highest (in FY03/16) and 10.1% the lowest (in FY03/15). Shared Research thinks the company has four major sources of added
value: First, it has the logistics capabilities to respond accurately to small-lot orders. Second, because the company handles such a
wide range of items, it can serve as a one-stop wholesaler. Third, the company has the ability to make proposals that connect
manufacturer promotions with instore retail methods. Fourth, the company has a vast store of transaction data (available for free
or for a fee to retailers and manufacturers) that it can use to identify what is being sold and where, at any particular time.
31.1% 14.0% 9.2% 19.5% 7.5% 18.8%
Health & Beauty Household Home CarePaper Products Home Goods Pet Goods, other
48.6% 16.4% 12.3% 7.3%5.4% 9.8%
Drugstores DIY centers Supermarkets Discount stores GMS Other
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The function of wholesaling: Simplifying connections between numerous suppliers and numerous sellers
Source: Shared Research
Accurate deliveries from logistics centers a source of added value
The company believes the logistics capabilities that enable it to respond accurately even to small orders are a source of added
value. A wholesaler’s role is to efficiently distribute products from multiple manufacturers to multiple retailers. ARATA works to
ensure accurate and inexpensive product distribution, mainly through the operation of 11 large logistics centers across Japan,
each capable of handling product volumes worth more than JPY15.0bn per year.
Products are typically delivered from manufacturers to logistics centers, where they are inspected, manually sorted, and then
transported to large automated warehouses or areas for handling in smaller lots. In the past, after products arrived at a logistics
center and were inspected, stickers were affixed at a designated location, and then first-round sorting was necessary. However,
ARATA’s state-of-the-art logistics centers now employ systems that streamline the receipt of goods. Developed in cooperation
with manufacturers, these systems allow employees on the distribution end to simply wave a handheld terminal over the goods,
automating the first-round sorting process. Even a medium-sized logistics center handles 40–50 trucks per day. Making
forwarding operations more efficient helps to reduce operational mistakes, decreases truck congestion at logistics centers, and
reduces the number of trucks waiting to be unloaded. (Shortening the long hours required for loading/unloading trucks helps
lower transport costs.)
For small-lot deliveries, the company relies on human capabilities and mechanical checks to ensure that operations are efficient
and mistakes are kept to a minimum. ARATA has introduced AiMAS, picking carts equipped with scales, at its logistics centers.
Employees follow the instructions on a cart’s screen, taking products off shelves and placing them on the cart. A bar code
confirms that the correct products are taken, and the cart senses the weight of the cart before and after the product(s) have been
added to confirm that the quantity is correct. The company uses such systems to make deliveries, in quantities as small as a single
toothbrush, to 55,000 stores operated by some 5,000 companies, with a misdelivery rate of less than 1/100,000 (source: 2018
Integrated Report).
The Kyushu Minami center, the company’s newest facility, has an AI-equipped depalletizing robot. Due to the sheer number of
items the company handles, the task of locating the right container of goods from the vast number of containers stacked on
pallets, and placing it on the conveyers for shipping yielded a number of permutations so large that robot programming was
impracticable. For that reason, until recently, the company relied on humans for this task. However, the company has eliminated
the need to program the robot by using a system comprising 2D/3D cameras and deep learning functionality, improving
operational speed. As a result, work that previously required six employees can now be handled by one. The company makes
capital investments of around JPY5.0bn per year; by using state-of-the-art distribution systems, it aims to handle more quantity
without increasing the total number of employees, while ensuring accurate and efficient deliveries.
Manufacturers Retailers Manufacturers Retailers
Wholesaler
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AiMAS picking cart (left) and AI-equipped depalletizing robot (right)
Source: Shared Research based on company materials
Information system that facilitates one-stop service
The company has an information system to ensure the accuracy of orders it places and receives for the 120,000 items it handles. It
uses an electronic data interchange (EDI) backbone provided by Planet (TSE JASDAQ Standard: 2391). Investors in Planet include
manufacturers of everyday items such as Lion (TSE1: 4912) and Unicharm (TSE1: 8113), as well as Intec (now TIS [TSE1: 3626]).
Planet was established to create systems for communicating data between wholesalers and manufacturers of everyday items,
sundries, and cosmetics. ARATA has been working with Planet on EDI backbone development since that company’s
establishment, helping it create a framework for accurately handling information regarding the placement and receipt of orders
between manufacturers and distributors. Planet also provides a supplementary service for small and medium-sized manufacturers
without the wherewithal to install the EDI backbone. The service helps ensure the accuracy of information ARATA exchanges with
these manufacturers, as well.
Different retailers use different systems for placing orders, but most are compliant with the distribution Business Message
Standard (BMS). The distribution BMS arose as the result of an April 2007 project ran by the Ministry of Economy, Trade and
Industry that aimed to standardize distribution systems so that EDIs could use specifications common among members of the
distribution sector (manufacturers, wholesalers, and retailers). Distribution BMS compliance accelerates and reduces the cost of
communicating data on order placement, shipping, receipt, inspections, and invoicing among these members. In the past,
transferring data on order receipt and placement could be time-consuming, owing to limitations on telecommunication speed.
Currently, such data can be transmitted and received rapidly and accurately. ARATA outsources management of the EDI system it
uses for order receipt and placement with retailers (its customers).
Since 2011, the company has used InfoFrame DWH Appliance, an ultrahigh-speed data analysis platform provided by NEC (TSE1:
6701), and in March 2019, the company transitioned to NEC’s next-generation product, the Data Platform for Analytics (DP4A).
Each day, the company receives data on orders received from retailers and has thereby amassed a huge volume of data over time.
The company uses this information in sales activities, to improve distribution efficiency, and to provide feedback to manufacturers.
Before introducing NEC’s platform in 2011, the company used its own dbQuest search system for extracting data. At busy times,
particularly at the beginning and end of each month, search requests could take anywhere from dozens of minutes to several
hours, limiting the number of searches possible.
The NEC system increased search speed by approximately 100 times, making it possible to use the data for a variety of purposes.
Currently, the company uses it to manage profitability by customer and product group. In the future, it intends to utilize the
DP4A’s machine learning function to increase the amount of data it sells. In such ways, the company says it uses third-parties
effectively to build information systems at little cost.
Advice on creating successful retail spaces
Shared Research understands that the company stands out in the industry for its ability to make proposals that connect
manufacturer promotions with instore retail methods. Facilitating such proposals is Dentsu Retail Marketing (DRM), an
equity-method affiliate the company established in November 2006 along with Dentsu Tec Inc., a subsidiary of Dentsu (TSE1:
4324), NEC (TSE1: 6701), and Dai Nippon Printing (TSE1: 7912). Dentsu is a leading advertising agency with the top domestic
market share and handles the creation of TV and online ads for many companies including manufacturers. ARATA has a 36% stake
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in DRM (previously 20%). DRM’s services include consulting on the analysis and use of customer purchasing data, planning and
creating sales promotional tools tailored to store- or region-specific demand, managing instore product displays, and putting
sales promotion tools in place in stores. Through DRM, the company works to maximize the combined effectiveness of different
types of advertising and instore retail spaces. Recently, the company has been stepping up its efforts to create spaces in tie-ups
with regional TV stations and newspaper advertisements. In addition to advertising products nationwide, the company creates
plans to capitalize on regional events and proposes to retailers plans that link the three: special events, ads, and products.
In April 2007, the company established ISM Corporation as a subsidiary. As requested by manufacturers, employees of this
subsidiary visit individual stores, particularly chain stores, at a specified time on a certain day to monitor store conditions, help
design retail spaces, and provide feedback to the manufacturer. The service is designed to promote the effective nationwide
rollout of products while helping create retail spaces that are on-trend. The company provides added value by offering advice on
how to design “spaces that sell.”
The company’s SG&A ratio (SG&A expenses to sales) is generally between 9% and 10%. Over the past five years, the ratio has
averaged 9.4%, with a high of 9.7% in FY03/15 and a low of 9.2% in FY03/19. Of this figure, salaries and allowances have been
the largest component, averaging 2.8% of sales during the period, followed by packaging and transportation expenses, at 2.6%.
Sales grew 18.1% from JPY638.8bn in FY03/15 to JPY754.4bn in FY03/19. The number of employees (consolidated basis)
increased a modest 2.4% from 2,946 at end-FY03/15 to 3,016 at end-FY03/18, and salaries and allowances were up slightly.
Packaging and transportation expenses, meanwhile, rose due to higher freight volumes and trended upward as a percentage of
sales due to higher freight rates.
OPM was 0.4% in FY03/15, 0.8% in FY03/16, 1.0% in FY03/17, 1.2% in FY03/18, and 1.2% in FY03/19. Through FY03/18, gross
profit rose in tandem with sales, with the GPM rising because sales grew faster than SG&A expenses. Packaging and
transportation expenses rose, but the company raised the overall profit margin by controlling the rise in salaries and allowances
and other personnel costs. OPM fell slightly YoY in FY03/19, but operating profit increased, because gross profit rose faster than
SG&A expenses.
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Business breakdown
Source: Shared Research based on company data
Breaking sales down by product category, Health & Beauty, Home Goods, and Pet Goods/Other are the categories driving
growth. According to the company, GPM is higher for Health & Beauty than other categories, although it varies between product
items. We believe the company is competitive in this category and increasing its market share.
Sales by category FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19(JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act.Total sales (new categories) 732,914 754,447
YoY - 2.9%Health & Beauty 223,800 234,426
YoY - 4.7%% of total sales 30.5% 31.1%
Household 100,899 105,506 YoY - 4.6%% of total sales 13.8% 14.0%
Home Care 70,553 69,179 YoY - -1.9%% of total sales 9.6% 9.2%
Paper Products 70,553 69,179 YoY - -1.9%% of total sales 9.6% 9.2%
Home Goods 54,082 56,631 YoY - 4.7%% of total sales 7.4% 7.5%
Pet Goods, other 136,410 141,499 YoY - 3.7%% of total sales 18.6% 18.8%
Total sales (old categories) 601,949 606,705 616,327 651,954 638,792 676,743 704,610 732,914 754,447 YoY 2.0% 0.8% 1.6% 5.8% -2.0% 5.9% 4.1% 4.0% 2.9%Health & Beauty 174,270 181,028 180,304 186,283 181,492 196,853 212,207 225,283
YoY 2.3% 3.9% -0.4% 3.3% -2.6% 8.5% 7.8% 6.2% % of total sales 29.0% 29.8% 29.3% 28.6% 28.4% 29.1% 30.1% 30.7%
Toiletary 155,835 159,510 160,467 169,839 163,503 162,333 169,312 175,291 YoY - 2.4% 0.6% 5.8% -3.7% -0.7% 4.3% 3.5% % of total sales 25.9% 26.3% 26.0% 26.1% 25.6% 24.0% 24.0% 23.9%
Paper Products 135,329 127,376 128,777 138,652 135,584 145,872 146,026 147,245 YoY -1.3% -5.9% 1.1% 7.7% -2.2% 7.6% 0.1% 0.8% % of total sales 22.5% 21.0% 20.9% 21.3% 21.2% 21.6% 20.7% 20.1%
Home Goods 42,591 43,004 45,498 48,833 47,440 50,021 51,912 54,285 YoY - 1.0% 5.8% 7.3% -2.9% 5.4% 3.8% 4.6% % of total sales 7.1% 7.1% 7.4% 7.5% 7.4% 7.4% 7.4% 7.4%
Pet Goods, other 93,924 95,787 101,281 108,347 110,773 121,664 125,153 130,810 YoY -66.7% 2.0% 5.7% 7.0% 2.2% 9.8% 2.9% 4.5% % of total sales 15.6% 15.8% 16.4% 16.6% 17.3% 18.0% 17.8% 17.8%
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Market and value chain
Sales rising slightly more than drugstore sales
Drugstores are the company’s largest customers, by percentage of sales. The top-selling product categories reflect this: Health &
Beauty (mainly cosmetics and oral-care products) and Paper Products (mainly baby diapers, sanitary goods, and toilet paper) are
sold in drugstores. Total drugstore sales across Japan have grown by a CAGR of 3.9% between FY2013 and FY2018 (from JPY6.0tn
to JPY7.3tn). The company’s sales have climbed by a CAGR of 3.0%, from JPY652bn in FY03/14 to JPY754.4bn in FY03/19.
Looking at trends in the drugstore industry, large drugstores have been seeking to increase sales by aggressively opening new
stores and through acquisitions. Meanwhile, small and medium-sized drugstores have been closing, accounting for a shrinking
market share. ARATA delivers products to all the big drugstores in Japan. These drugstores make up a growing share of the
market, driving up the company’s sales. By customer type, ARATA’s sales to drugstores have been rising at a CAGR of 4.6%,
outpacing the growth rate of the drugstore industry itself. Major drugstores have established many tax-free stores to capture
increasing demand from inbound tourists. ARATA thinks its ability to abundantly supply these stores with items popular among
inbound tourists has contributed to its increase in sales.
However, the company has not benefited completely from sales growth in the large-drugstore subset. Sales at the six largest
drugstores in Japan grew at a CAGR of 7.3% between FY2013 (JPY2.4tn) and FY2018 (JPY3.5tn), rising faster than ARATA’s sales.
The reason is that large drugstores have accelerated growth by stocking food items, which make up only a tiny proportion of the
company’s products.
Sales data for six large drugstores is from Matsumotokiyoshi Holdings (TSE1: 3088), cocokara fine (TSE1: 3098), Cosmos Pharmaceutical (TSE1: 3349),
Tsuruha Holdings (TSE1: 3391), Sugi Holdings (TSE1: 7649), and Sundrug (TSE1: 9989). Data for Welcia Holdings (TSE1: 3141) has been omitted, as
FY02/15 was an irregular period due to a change in the fiscal year-end.
Among drugstores, the company’s sales to Tsuruha Holdings make up more than 10% of total sales, requiring a separate
breakdown in its annual securities report. (In FY03/19, sales to Tsuruha were JPY97.7bn, or 13.0% of FY03/19 sales).
Sales growth ratios
Source: Shared Research based on information from the Japan Association of Chain Drug Stores and individual companies
The company also sells product to other customer types, so sales growth is affected by their performance, as well. Over the past
five years, ARATA’s sales to discount stores have risen by a CAGR of 5.3%. Among key customers, store numbers have grown, and
discount stores have also benefited from increased demand from inbound tourists. On the other hand, sales to DIY centers have
risen 0.6%, sales to supermarkets have risen 1.4%, and sales to general merchandise stores (GMSs) have fallen 3.7%. Sales to
convenience stores are no longer on a meaningful scale, falling as convenience stores have restructured and changed their
procurement policies.
FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 CAGR(JPYtn) FY2013–2018Sales: Total drugstores 5.94 6.01 6.07 6.13 6.49 6.85 7.27 3.9%
YoY 1.2% 1.0% 1.1% 5.9% 5.5% 6.2% Sales: Six major drugstores 2.22 2.42 2.51 2.80 2.95 3.20 3.45 7.3%
YoY 9.1% 3.9% 11.5% 5.3% 8.5% 7.6% PALTAC (8283) (JPYbn) 785.8 831.9 794.2 860.4 922.1 966.7 1,015.3 4.1%
YoY 5.9% -4.5% 8.3% 7.2% 4.8% 5.0% ARATA (JPYbn) 616.3 652.0 638.8 676.7 704.6 732.9 754.4 3.0%
YoY 5.8% -2.0% 5.9% 4.1% 4.0% 2.9% Drugstores 272.9 292.9 293.0 311.9 331.3 349.9 367.0 4.6%
YoY 7.3% 0.1% 6.4% 6.2% 5.6% 4.9% Other sales 343.4 359.1 345.8 364.9 373.3 383.0 387.4 1.5%
YoY 4.6% -3.7% 5.5% 2.3% 2.6% 1.2%
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Sales by customer type
Source: Shared Research based on company data
Competitors
ARATA’s main competitor is PALTAC (TSE1: 8283). Both companies are large wholesalers that handle cosmetics and everyday
items and focus mainly on drugstores. The third-largest company in the industry, Chuo Bussan Corporation, is the main company
operated by CB Group Management (TSE1: 9852), and has sales of JPY145.8bn (FY03/19). ARATA and PALTAC together account
for the lion’s share of everyday-item wholesale in Japan, with a combined market share of nearly 50%. The companies are similar
in that overseas sales account for less than 10% of the total, and that OPM levels are lower than either upstream manufacturers or
downstream drugstores.
Sales by customer type FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19(JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act.Total sales 601,949 606,705 616,327 651,954 638,792 676,743 704,610 732,914 754,447
YoY 2.0% 0.8% 1.6% 5.8% -2.0% 5.9% 4.1% 4.0% 2.9%Drugstores 272,929 292,880 293,028 311,892 331,310 349,940 367,008
YoY - 7.3% 0.1% 6.4% 6.2% 5.6% 4.9%% of total sales 44.3% 44.9% 45.9% 46.1% 47.0% 47.7% 48.6%
DIY centers 115,295 120,156 112,415 116,301 117,565 123,558 123,829 YoY - 4.2% -6.4% 3.5% 1.1% 5.1% 0.2%% of total sales 18.7% 18.4% 17.6% 17.2% 16.7% 16.9% 16.4%
Supermarkets 84,050 86,825 85,880 86,393 88,414 92,264 93,043 YoY - 3.3% -1.1% 0.6% 2.3% 4.4% 0.8%% of total sales 13.6% 13.3% 13.4% 12.8% 12.5% 12.6% 12.3%
Discount stores 39,970 42,766 42,961 48,354 50,678 53,054 55,448 YoY - 7.0% 0.5% 12.6% 4.8% 4.7% 4.5%% of total sales 6.5% 6.6% 6.7% 7.1% 7.2% 7.2% 7.3%
General merchandising stores (GMS) 47,211 49,242 45,540 45,791 47,061 42,557 40,818 YoY - 4.3% -7.5% 0.6% 2.8% -9.6% -4.1%% of total sales 7.7% 7.6% 7.1% 6.8% 6.7% 5.8% 5.4%
Convenience stores 11,331 9,904 9,554 8,481 5,763 YoY - -12.6% -3.5% -11.2% -32.0% % of total sales 1.8% 1.5% 1.5% 1.3% 0.8%
Other 45,541 50,181 49,414 59,531 63,819 71,539 74,298 YoY - 10.2% -1.5% 20.5% 7.2% 2.8% 3.9%% of total sales 7.4% 7.7% 7.7% 8.8% 9.1% 9.8% 9.8%
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Sales by customer type
Source: Shared Research based on company data. SSM refers to “super supermarkets.”
Different customer bases
In FY03/18, PALTAC had sales of JPY1.2tn, compared with JPY754.4bn for ARATA. Drugstores account for a high percentage of
products delivered by both companies, but this ratio is higher for PALTAC than for ARATA (more than 60% vs. under 50%).
Matsumoto Kiyoshi is PALTAC’s major drugstore client, accounting for around 10% of total sales.
PALTAC’s sales to convenience stores account for around 7% of total sales, while ARATA’s are minimal. In the past, the Circle K
Sunkus chain of convenience stores was a major client, but ARATA’s sales to convenience stores essentially disappeared after the
chain effectively merged with FamilyMart and changed its procurement policies. Conversely, ARATA has higher sales to DIY
centers and supermarkets/GMSs than PALTAC. PALTAC outpaces ARATA in sales to discount stores, but the difference is relatively
small.
Although the companies have different strengths, their market shares are stable. As the table at the start of this section shows,
CAGR for sales over the past five years has been 4.1% at PALTAC versus 3.0% for ARATA, with favorable drugstore sales
contributing relatively more to PALTAC.
Different cost structures
In FY03/19, ARATA had a GPM of 10.4%, versus 7.8% at PALTAC. Although the companies use different methods for booking
sales and expenses, based on the data released in the annual securities reports, we have drawn the conclusion that customers
view ARATA to be providing greater added value.
ARATA has an SG&A ratio of 9.2%, versus 5.3% for PALTAC. ARATA explains this difference as being the cost necessary to create
and maintain added value. According to their annual securities reports, distribution-related costs (called “packaging and
transportation expenses” at ARATA, “distribution expenses” at PALTAC) were 2.7% of sales at ARATA, versus 1.1% for PALTAC.
ARATA, which was formed through mergers, has many small logistics centers, whereas PALTAC has more large-scale logistics
centers, which are more efficient. HR-related costs (the sum of salaries or salaries and allowances, provision for bonuses, and
retirement benefit costs) was 3.0% for ARATA, vs. 2.0% for PALTAC. Shared Research believes ARATA has room to improve its
distribution and HR efficiency.
Holdings of business partners’ shares
ARATA holds significant amounts of equity in business partners as policy shareholdings, as does PALTAC. According to their
annual securities reports, in FY03/19 ARATA held JPY9.2bn worth of shares in 104 companies; PALTAC held JPY22.4bn in shares of
65 companies. Most of these shares are in the companies’ suppliers (manufacturers) or customers (drugstores and other
retailers).
(JPYmn) % of sales (JPYmn) % of sales (JPYmn) % of sales (JPYmn) % of sales
Sales 732,914 100.0% 754,447 100.0% Sales 966,684 100.0% 1,015,253 100.0%Drugstores 349,940 47.7% 367,008 48.6% Drugstores 607,722 62.9% 638,883 62.9%DIY centers 123,558 16.9% 123,829 16.4% DIY centers 93,156 9.6% 93,409 9.2%Discount stores 53,054 7.2% 55,448 7.3% Discount stores, other 59,037 6.1% 69,908 6.9%Supermarkets (SMs), GMS 134,821 18.4% 133,861 17.7% SMs, SSMs, GMS 93,155 9.6% 92,020 9.1%Convenience stores - - - - Convenience stores 71,880 7.4% 75,064 7.4%Other 71,541 9.8% 74,301 9.8% Export, other 41,734 4.3% 45,969 4.5%
Gross profit 76,475 10.4% 78,197 10.4% Gross profit 76,051 7.9% 79,645 7.8%SG&A expenses 67,618 9.2% 69,305 9.2% SG&A expenses 53,045 5.5% 54,246 5.3%
Packing and transportation expenses 18,834 2.6% 20,255 2.7% Distribution expenses 10,210 1.1% 11,062 1.1%Salaries and allowances 19,760 2.7% 20,008 2.7% Salaries and allowances 17,019 1.8% 17,051 1.7%Provision for bonuses 1,590 0.2% 1,395 0.2% Provision for bonuses 2,035 0.2% 1,713 0.2%Retirement benefit expenses 950 0.1% 940 0.1% Retirement benefit expenses 1,452 0.2% 1,253 0.1%Other 26,484 3.6% 10 0.0% Other 22,329 2.3% 23,167 2.3%
Operating profit 8,857 1.2% 8,892 1.2% Operating profit 23,006 2.4% 25,399 2.5%Depreciation 4,353 0.6% 4,455 0.6% Depreciation 4,830 0.5% 4,493 0.4%
EBITDA 13,210 1.8% 13,347 1.8% EBITDA 27,836 2.9% 29,892 2.9%
ARATA (2733) PALTAC(8283)FY03/18 FY03/19 FY03/18 FY03/19
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Strengths and weaknesses
Strengths
◤ Logistics capabilities: After the company receives an order from a retailer, it works to efficiently deliver the right quantity of
the right products to the right location at the right time. ARATA handles around 120,000 items (such as cosmetics and other
Health & Beauty products, detergents, and paper products), most of which it buys from around 1,600 Japanese and overseas
suppliers (source: 2018 Integrated Report). The company wholesales these products to around 55,000 stores operated by
5,000 companies, including drugstores, supermarkets, and DIY centers, covering almost all retail subsectors in Japan. We
understand that this variety of items is attractive for retailers, as it allows them to order everything they need from one
supplier. Despite repeated attempts by retailers to have manufacturers deliver to them directly, successes with this approach
have been few. This situation creates an effective barrier to entry.
◤ Ability to propose solutions: For retailers, creating effective retail spaces is vital. ARATA can assist in this, as it knows what
products peer retailers are selling in large volumes and how. The company uses this knowledge to propose new ideas to retail
stores about how to create on-trend retail spaces. When a retailer introduces a new cosmetic product, for example, the
company might suggest the retailer collaborate with the manufacturer to create an instore space with a TV commercial tie-in.
(This approach enables the manufacturer to deliver sales promotion materials along with the product.) The company works
with Dentsu Retail Marketing, a 36%-owned equity-method affiliate, to create regional sales promotion campaigns linked with
regional TV commercials. This capability sets ARATA apart from peers. Dentsu, a business partner in these services, is a leading
advertising agency with top domestic market share and handles the creation of TV and online ads for many companies
including manufacturers.
◤ Accumulated information: We estimate that the sheer volume of the products ARATA handles would place it among Japan’s
top-10-ranking retailers (on an instore retail price basis). The company has thus accumulated a large amount of up-to-date
data on retail orders (what is selling well, and where and what changes are occurring). Accurate information on what
products are selling well (and which are not) at other companies is valuable for retailers. For the manufacturers as well, ARATA
has information on peer products being sold at the retailers (what is selling, under what sort of a promotion plan and retail
space design). Such information could at times be more valuable to manufacturers than the results of their own field research
and can also be useful for their product development.
Weaknesses
◤ Logistics costs: The company has numerous small-scale logistics centers, partly due to its corporate history of business
combinations among wholesalers with close regional ties. Although the company is gradually building more efficient
large-scale logistics centers, the rising quantity of products it handles has hampered a scrap-and-build approach. Logistics
costs are relatively high as a result, which holds down profitability. A comparison with PALTAC based on disclosure materials
points to the disadvantage of ARATA’s logistic costs. Although the company is not losing out in the face of severe price
competition, the current situation limits profits.
◤ Overseas development capabilities: Many large manufacturers and retailers are shifting their operations to China, ASEAN
countries, and other markets that offer more room for growth than Japan. ARATA’s overseas sales account for less than 1% of
the total, and the company does not have a framework in place to sufficiently support customers that are developing
operations overseas. Shared Research thinks this weakness may stem from the fact that wholesaling has grown more slowly
than upstream and downstream parts of the supply chain.
◤ Ability to respond to changing commercial channels: The trend toward increasing online sales represents an existential
threat to brick-and-mortar retailers (i.e., risk of market share erosion). Although ARATA has online retailer customers, they
account for less than 1% of sales. Its competitiveness stems from the ability to connect manufacturers and retailers, but the
company is not fully equipped to respond to the shift to e-commerce. Shared Research is awaiting for the company to disclose
strategies concerning functions and value added it plans to offer in order to grow sales to online retailers.
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Historical results and financial statements
Income statement
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Over the past five years, sales have grown by a CAGR of 3.0%, although sales declined in FY03/15, affected by a consumption tax
hike in Japan. Other than that, the company has grown each year. By customer type, sales to drugstores and discount stores have
continued to drive overall growth, while growth in sales to DIY centers, supermarkets, and GMSs have been relatively low.
The company’s GPM is generally between 10% and 11%. The average over the past five years was 10.3%, with 10.5% being the
highest (in FY03/16) and 10.1% the lowest (in FY03/15). The SG&A ratio is generally between 9% and 10%. Over the past five
years, the ratio has averaged 9.4%, with a high of 9.7% in FY03/15 and a low of 9.2% in FY03/19. Of this figure, salaries and
allowances have been the largest component, averaging 2.8% of sales during the period, followed by packaging and
transportation expenses, at 2.7%. Although sales have continued to grow, sales and allowances have fallen slightly as a
percentage of sales. Packaging and transportation expenses have been up due to higher freight volumes and trended upward as
a percentage of sales due to higher freight rates.
OPM was 0.4% in FY03/15, 0.8% in FY03/16, 1.0% in FY03/17, 1.2% in FY03/18, and 1.2% in FY03/19. In FY03/17, non-operating
income and expenditures was a net positive JPY458mn, rising to JPY582mn in FY03/18 and remaining positive at JPY269mn in
FY03/19. This increase was due mainly to a decline in interest payments, as interest-bearing debt decreased. The recurring profit
margin was 1.1% in FY03/17, exceeding 1% for the first time since FY03/04.
In the past, the company recorded purchase discounts as non-operating income (amounting to JPY3.0–4.5bn per year). Since
FY03/13, the company has recorded purchase discounts in cost of sales, as a deduction from purchases. (For this report, we have
retroactively adjusted figures for FY03/12 to reflect this change.)
Income statement FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Sales 601,949 606,705 616,327 651,954 638,792 676,743 704,610 732,914 754,447
YoY 2.0% 0.8% 1.6% 5.8% -2.0% 5.9% 4.1% 4.0% 2.9%Cost of sales 525,622 537,672 552,041 585,224 574,179 606,012 631,542 656,439 676,249 Gross profit 76,327 69,033 64,286 66,730 64,613 70,731 73,068 76,475 78,197
GPM 12.7% 11.4% 10.4% 10.2% 10.1% 10.5% 10.4% 10.4% 10.4%SG&A expenses 76,041 64,859 60,560 62,258 62,152 65,032 65,684 67,618 69,305
SG&A ratio 12.6% 10.7% 9.8% 9.5% 9.7% 9.6% 9.3% 9.2% 9.2%Operating profit 286 4,174 3,726 4,472 2,461 5,699 7,384 8,857 8,892
YoY 302.8% - -10.7% 20.0% -45.0% 131.6% 29.6% 19.9% 0.4%OPM 0.0% 0.7% 0.6% 0.7% 0.4% 0.8% 1.0% 1.2% 1.2%
Non-operating income 5,195 949 942 927 944 977 1,158 1,195 1,189 Non-operating expenses -1,224 -1,208 -1,063 -1,011 -936 -865 -700 -613 -652
Interest income 9 8 6 7 6 6 7 7 6 Dividend income 91 98 111 113 120 128 148 161 172 Interest expenses -866 -824 -774 -712 -661 -554 -436 -325 -217 Equity in earnings of affiliates 6 12 14 9 27 17 26 14 8 Forex gains (losses) - - - - - - - - -
Recurring profit 4,257 3,915 3,605 4,388 2,469 5,811 7,842 9,439 9,429 YoY 9.5% -8.0% -7.9% 21.7% -43.7% 135.4% 35.0% 20.4% -0.1%RPM 0.7% 0.6% 0.6% 0.7% 0.4% 0.9% 1.1% 1.3% 1.2%
Extraordinary gains 188 3 22 611 148 69 51 411 1,239 Gain on sale of fixed assets - - 1 74 - 3 50 361 160 Other 188 3 21 537 148 66 1 50 1,079
Extraordinary losses 1,280 208 84 268 124 188 416 168 516 Loss on disposal of fixed assets 35 101 12 29 114 96 305 4 157 Loss on retirement of fixed assets 75 30 11 42 10 64 27 16 6 Impairment losses - - - 57 - 26 7 103 - Loss on valuation of securities 149 28 27 138 - 1 - 43 2 Other 1,170 77 61 140 - 2 77 45 353
Income taxes 2,149 2,081 1,772 2,294 1,376 2,458 2,624 3,319 3,244 Implied tax rate 67.9% 56.1% 50.0% 48.5% 55.2% 43.2% 35.1% 34.3% 32.0%
- - 2 - -8 -10 -9 2 4 1,015 1,628 1,768 2,435 1,124 3,244 4,863 6,361 6,903
YoY -21.6% 60.4% 8.6% 37.7% -53.8% 188.6% 49.9% 30.8% 8.5%Net margin 0.2% 0.3% 0.3% 0.4% 0.2% 0.5% 0.7% 0.9% 0.9%
Net income attributable to owners of the parentNet income attributable to non-controlling interests
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Balance sheet
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Although the scale of sales is large, at fiscal year-end the company maintains cash and deposits worth only about 0.3 months’
sales, as its business model requires little cash on hand. Trade receivables (notes and accounts receivable) exceed trade payables
(notes and accounts payable), but by a small margin. Inventory turnover is around 0.5 months. As of end-FY03/19, the company
had JPY39.5bn in working capital.
Most tangible fixed assets are related to logistics centers (buildings, structures, and land). Intangible fixed assets are primarily
software used by the company. Investments and other assets are mainly investments in securities (cross-shareholdings). The
company says it plans to reduce its amount of cross-shareholdings.
Interest-bearing debt has fallen between end-FY03/12 and end-FY03/19 (from JPY68.7bn to JPY36.5bn). Shared Research
understands the company includes convertible bond-type bonds with share acquisition rights within interest-bearing debt.
Balance sheet FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Assets
Cash and deposits 9,640 9,985 8,108 10,965 11,800 14,119 13,693 17,826 19,798 Notes and accounts receivable 70,942 78,328 82,592 89,542 82,649 86,133 82,212 97,321 98,763 Inventories 30,203 30,907 31,009 30,981 28,072 27,971 29,556 29,997 30,804 Accounts receivable–other 16,952 18,719 17,953 20,222 17,650 19,877 23,939 22,827 22,825 Other 5,174 5,081 6,144 6,305 3,735 3,773 4,055 4,178 2,966
Total current assets 132,911 143,020 145,806 158,015 143,906 151,873 153,455 172,149 175,156 Buildings and structures 16,949 18,972 18,201 19,828 22,730 21,415 21,829 22,983 21,906 Land 20,076 19,996 19,997 19,853 20,540 21,330 21,004 20,461 19,936 Other 7,009 5,929 7,782 9,091 8,626 8,096 7,415 7,597 7,180
Total tangible fixed assets 44,034 44,897 45,980 48,772 51,896 50,841 50,248 51,041 49,022 Goodwill 2,294 1,874 1,524 1,093 661 230 7 - 14 Other 2,217 2,381 2,584 3,196 3,486 3,551 3,569 3,495 3,645
Total intangible assets 4,511 4,255 4,108 4,289 4,147 3,781 3,576 3,495 3,659 Investment securities 4,513 5,301 5,314 6,631 8,426 9,732 11,713 13,539 11,153 Deferred tax assets 2,480 2,171 1,266 541 308 347 327 270 572 Other 3,090 2,860 4,224 2,952 3,156 3,115 3,655 3,887 4,051
Investments and other assets 10,083 10,332 10,804 10,124 11,890 13,194 15,695 17,696 15,776 Total fixed assets 58,630 59,486 60,893 63,187 67,934 67,816 69,519 72,232 68,458 Total assets 191,541 202,506 206,699 221,202 211,840 219,689 222,974 244,381 243,614
Liabilities
Accounts and notes payable 56,843 58,081 65,031 69,039 68,989 72,135 76,579 89,112 90,031 Short-term debt 41,315 42,934 35,380 37,069 35,271 38,017 28,147 32,653 17,945 Accounts payable–other 6,651 7,962 8,682 10,037 9,681 10,200 10,884 12,783 12,883 Other 6,421 6,821 7,422 6,765 8,473 9,404 8,393 11,283 8,970
Total current liabilities 111,230 115,798 116,515 122,910 122,414 129,756 124,003 145,831 129,829 Long-term debt 24,331 29,042 30,904 38,048 27,157 24,215 27,930 14,648 21,861
1,063 860 - - 648 517 1,052 1,626 442 Retirement benefit liabilities 7,366 7,479 7,977 6,589 4,898 6,478 7,276 7,535 7,724 Other 1,886 2,003 2,259 2,614 2,812 2,782 3,100 3,269 3,242
Total fixed liabilities 34,646 39,384 41,140 47,251 35,515 33,992 39,358 27,078 33,269 Total liabilities 145,876 155,182 157,655 170,161 157,929 163,748 163,361 172,909 163,099 Net assets 45,665 47,324 49,044 51,041 53,911 55,941 59,613 71,472 80,515
Shareholders' equity 45,747 46,930 48,078 49,894 51,108 53,181 55,474 65,861 76,259 -101 376 945 1,123 2,789 2,742 4,131 5,601 4,240
Subscription rights to shares - - - - - - - - - Non-controlling interests 19 18 21 24 14 18 8 10 16
Total net assets 45,665 47,324 49,044 51,041 53,911 55,941 59,613 71,472 80,515 Working capital 44,302 51,154 48,570 51,484 41,732 41,969 35,189 38,206 39,536 Total interest-bearing debt 62,384 68,707 62,566 70,872 58,637 58,982 52,569 43,640 36,524 Net debt (net cash) 52,744 58,722 54,458 59,907 46,837 44,863 38,876 25,814 16,726
Deferred tax liabilities for land revaluation
Accumulated other comprehensive income
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Cash flow statement
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Cash flows from operating activities
Working capital varies depending on year-end sales trends, but the company’s main cash flows from operating activities are
income before income taxes, depreciation and amortization, and income taxes.
Cash flows from investing activities
Investments in tangible and intangible fixed assets vary between JPY3.0bn and more than JPY7.0bn, when payments rise to
account for major expenditures as logistics centers. The company is thinking of establishing the tentatively named Tokyo
Metropolitan Area Logistics Center, which would become operational between 2021 and 2022. The company expects cash flows
from investing activities to rise as it purchases land, buildings/structures, and machinery and equipment for that center.
Cash flows from financing activities
The company uses free cash flow mainly to repay borrowings. At the end of FY03/14, demand for working capital increased to
fund the purchase of products amid a demand surge ahead of a hike in Japan’s consumption tax rate. In FY03/15, however, cash
flow was used to repay loans. In FY03/19, new share issuance, the selling of treasury stock, and the issuance of convertible
bond-type bonds with share acquisition rights all had a positive effect on cash flow, but these factors were offset by repayment of
borrowings, and cash flow used in financing activities finished at JPY6.7bn.
The company has not indicated a specific target for its dividend payout ratio. This ratio was 26.1% in FY03/16, 19.6% in FY03/17,
18.8% in FY03/18, and 20.1% in FY03/19.
Cash flow statement FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Cash flows from operating activities (1) 1,919 -720 9,959 1,481 21,955 7,594 12,637 11,649 9,513
Pre-tax profit 3,165 3,709 3,543 4,731 2,493 5,691 7,477 9,682 10,152 Depreciation 2,983 3,348 3,631 3,975 4,317 4,526 4,452 4,353 4,455 Impairment losses - 27 - 57 - 26 7 103 - Amortization of goodwill 624 419 423 431 431 431 223 7 7 Gain on negative goodwill - - - - - - - -26 - Change in working capital -1,888 -7,067 1,533 -3,094 12,316 -202 6,500 -2,956 -977 Income taxes -2,202 -1,939 -1,851 -2,039 -1,386 -1,806 -3,097 -2,539 -3,685
Cash flows from investing activities (2) -3,227 -4,575 -4,054 -5,878 -6,775 -3,360 -3,155 -2,924 -880 -3,158 -4,034 -3,843 -6,338 -7,289 -3,392 -3,093 -5,086 -3,198
160 14 103 380 94 74 212 2,031 703 Free cash flow (1+2) -1,308 -5,295 5,905 -4,397 15,180 4,234 9,482 8,725 8,633 Cash flows from financing activities 2,697 5,257 -7,699 7,246 -13,990 -1,791 -9,948 -4,501 -6,678
Net increase in short-term borrowings -1,300 -600 -8,400 500 -3,400 4,400 -5,340 1,913 -10,600 Net increase in long-term borrowings 4,400 6,923 1,989 6,306 -10,334 -3,555 -6,124 -3,858 -2,413
-30 - - 1,978 1,475 -500 5,480 -500 3,979 Issuance of bonds - - - 2,478 1,975 - 5,980 - 5,979 Redemption of bonds -30 - - -500 -500 -500 -500 -500 -2,000
Proceeds from issuance of shares - - - - - - - - 3,061 Acquisition of treasury shares -1 - -3 -2 -370 -2 -2,123 -9 -5 Disposal of treasury shares 402 - - - 368 - - - 1,517 Dividends paid -377 -538 -616 -617 -771 -1,171 -910 -1,101 -1,389
Proceeds from issuance of, and redemption of, bonds
Proceeds from sale of tangible/intangible fixed assetsPurchase of tangible/intangible fixed assets
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Profitability and safety analysis
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Profit margins FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.
Gross profit 76,327 69,033 64,286 66,730 64,613 70,731 73,068 76,475 78,197GPM 12.7% 11.4% 10.4% 10.2% 10.1% 10.5% 10.4% 10.4% 10.4%Operating profit 286 4,174 3,726 4,472 2,461 5,699 7,384 8,857 8,892OPM 0.0% 0.7% 0.6% 0.7% 0.4% 0.8% 1.0% 1.2% 1.2%EBITDA 3,269 7,522 7,357 8,447 6,778 10,225 11,836 13,210 13,347EBITDA margin 0.5% 1.2% 1.2% 1.3% 1.1% 1.5% 1.7% 1.8% 1.8%Net margin 0.2% 0.3% 0.3% 0.4% 0.2% 0.5% 0.7% 0.9% 0.9%
Financial ratios ROA (RP-based) 2.3% 2.0% 1.8% 2.1% 1.1% 2.7% 3.5% 4.0% 3.9%ROE 2.2% 3.5% 3.7% 4.9% 2.1% 5.9% 8.4% 9.7% 9.1%Total asset turnover 328.0% 323.8% 312.8% 318.6% 298.6% 312.6% 326.6% 331.1% 322.9%Working capital 44,302 51,154 48,570 51,484 41,732 41,969 35,189 38,206 39,536Current ratio 119.5% 123.5% 125.1% 128.6% 117.6% 117.0% 123.8% 118.0% 134.9%Quick ratio 87.7% 92.4% 93.3% 98.2% 91.6% 92.6% 96.6% 94.6% 108.9%OCF / Current liabilities 1.7% -0.6% 8.6% 1.2% 17.9% 6.0% 10.0% 8.6% 6.9%OCF / Total liabilities 1.3% -0.5% 6.3% 0.9% 13.9% 4.6% 7.7% 6.7% 5.8%Cash conversion cycle (days) 3.83 5.89 6.95 6.38 5.32 3.02 0.63 -1.36 -0.91Change in working capital 2,688 6,852 -2,584 2,914 -9,752 237 -6,780 3,017 1,330
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Historical performance
1H FY03/20 results
Summary
▷ 1H FY03/20 results: Sales were JPY406.3bn (+6.6% YoY), operating profit was JPY5.0bn (+12.5% YoY), recurring profit was
JPY5.4bn (+15.6% YoY), and net income attributable to owners of parent was JPY3.9bn (+15.9% YoY). Results outperformed
initial forecasts (sales: JPY394.0bn, operating profit: JPY4.9bn). As well as ongoing aggressive sales activities toward achieving
medium-term plan targets, increased transactions relating to rushed demand prior to the consumption tax hike was a
contributing factor to outperformance. The company has made no changes to its full-year FY03/20 forecasts. Against full-year
forecasts, 1H sales reached 52.7% of the target, operating profit 54.2%, and net income 59.4%. Q2 (July–September) results
were sales of JPY210.9bn (+11.5% YoY), operating profit of JPY2.5bn (+27.8% YoY), and net income of JPY1.8bn (+13.9% YoY).
▷ Sales by customer type: Sales increased across all customer types in Q2 due in part to the rushed demand prior to the
consumption tax hike. Sales were up 10.8% YoY to JPY101.7bn to mainstay drugstores, up 8.0% YoY to JPY34.1bn to DIY
centers, up 12.8% YoY to JPY26.3bn to supermarkets, up 14.3% YoY to JPY16.1bn to discount stores, and up 8.1% YoY to
JPY11.0bn to GMS. In the “Other” category (including online retailers and cross-border e-commerce businesses), sales were up
18.7% YoY to JPY21.9bn. Growth was relatively high in sales to discount stores, supermarkets, and drugstores.
▷ Sales by product category: Sales also increased across all product categories in Q2. Sales were up 11.5% YoY to JPY65.6bn in
Health & Beauty, up 14.9% YoY to JPY30.5bn in Household, up 8.0% YoY to JPY19.5bn in Home Care, up 19.2% YoY to
JPY42.3bn in Paper Products, up 1.6% YoY to JPY14.8bn in Home Goods, and up 7.1% YoY to JPY38.3bn in Pet Goods/Other.
Growth in sales was relatively high in Paper Products (all types of baby diapers, toilet paper, etc.), Household (laundry
detergent, kitchen cleansers, etc.), and Health & Beauty (cosmetics, pharmaceuticals, oral-care products, etc.).
▷ Operating profit up 27.8% YoY: Gross profit increased 9.3% YoY to JPY21.1bn in Q2, while GPM deteriorated slightly YoY
to 10.0% (from 10.2% in Q2 FY03/19). The dip in GPM was mainly caused by the fact that sales growth from rush demand
preceding the October consumption tax hike was concentrated in low-margin products. It appears GPM is rising in product
categories designated as areas of focus in the company’s strategy. On the other hand, SG&A expenses increased just 7.2% YoY
to JPY18.6bn, with the SG&A expenses to sales ratio improving YoY to 8.8% (from 9.2% in Q2 FY03/19). Although
distribution-related expenses increased in accordance with higher sales, efforts to control the rise in indirect expenses
contributed to improving the SG&A ratio.
▷ Shareholder returns: There is no change in the annual dividend forecast of JPY85 per share in FY03/20 (JPY40 per share in 1H,
JPY45 per share in 2H). Regarding the acquisition of treasury stock announced in August (maximum 800,000 shares [4.5% of
the total number of shares outstanding], total acquisition cost: JPY3.0bn, acquisition period: August 5, 2019 to January 31,
2020), the company had purchased 430,900 shares at a cost of JPY1.6bn by October 31.
Seasonality: Sales and operating profit tend to be higher in Q3 (October–December) than in the other quarters, because product volume increases due
to the year-end holiday shopping season and other factors.
Measures to capture rush demand
Sales expanded a substantial 11.2% YoY in Q2 FY03/20 (July–September) to JPY211bn. Chain stores, the company’s main
customers, implemented sales promotions in an attempt to capture rush demand preceding the October consumption tax hike.
The company was able to capture the surge in demand by implementing measures to meet the specific needs of each customer
type before the tax hike went into effect. It secured ample stocks of popular products in advance, ensured it had sufficient
inventory to meet the temporary swell in logistics demand, and made prior arrangements with delivery companies to ensure its
delivery capabilities would be able to keep up with demand.
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Sales by customer type
Sales were up 10.8% YoY to JPY101.7bn to mainstay drugstores, up 8.0% YoY to JPY34.1bn to DIY centers, up 12.8% YoY to
JPY26.3bn to supermarkets, up 14.3% YoY to JPY16.1bn to discount stores, and up 8.1% YoY to JPY11.0bn to GMS. In the “Other”
category (including online retailers and cross-border e-commerce businesses), sales were up 18.7% YoY to JPY21.9bn. Growth
was relatively high in sales to discount stores, supermarkets, and drugstores.
From the company’s perspective, the expansion in sales through the first half of September was not as sharp as before the
previous consumption tax hike in March 2014. However, according to the company, sales surged dramatically in the second half
of September so that customers’ inventory levels were short by the end of the month. Inbound orders were relatively high
through the first half of October, but declined afterward due to the expected recoil in consumer demand.
The company estimates rush demand will account for JPY17bn plus (=JPY210.9bn – 189.2bn x 1.022) in FY03/20, assuming it
grows at its typical rate of growth during the year (2.2%, according to company forecasts).
Sales by product category
Sales were JPY65.6bn in Health & Beauty (+11.5% YoY), JPY30.5bn in Household (+14.9%), JPY19.5bn in Home Care (+8.0%),
JPY42.3bn in Paper Products (+19.2%), JPY14.8bn in Home Goods (+1.6%), and JPY38.3bn in Pet Goods/Other (+7.1%).
Sales growth in Paper Products (all types of diapers, toilet paper, etc.), Household (laundry detergent, kitchen cleansers, etc.),
and Health & Beauty (cosmetics, pharmaceuticals, oral-care products, etc.). We infer that consumers’ stocks of these products has
increased. The company’s medium-term plan calls for strategically expanding sales in the Health & Beauty, Home Goods, and Pet
Goods/Other categories. Growth in these categories in Q2, however, was not so much the result of strategic intent as it was of
the impact of rush demand.
Slight decline in GPM
In Q2, gross profit increased 9.3% YoY to JPY21.1bn and GPM fell 0.2pp YoY to 10%. The dip in GPM was mainly caused by the
fact that sales growth from rush demand preceding the increase in consumption tax was concentrated in low-margin products.
However, it appears GPM is rising in product categories designated as areas of focus in the company’s strategy (Health & Beauty,
Home Goods, etc.). It appears the company’s initiatives to raise GPM are steadily having the desired effect. It is possible that GPM
could rise if the post-tax-hike slump causes a decline in the portion of sales occupied by low-margin products and the GPM for
the company’s strategic products continues to climb.
SG&A expenses
SG&A expenses rose 7.2% YoY to JPY18.6bn. The SG&A-to-sales ratio improved to 8.8% from 9.2% in Q2 FY03/19. Logistics costs
rose due to factors such as higher sales, measures to handle rush demand, and more expensive shipping costs. On the other hand,
the company held back on personnel expenses and other expenses, which contributed to the decline in the SG&A-to-sales ratio.
Initiatives for long-term growth
ARATA explained its recent initiatives, based on its medium-term plan, in its 1H results briefing. The most striking initiative was
the company’s plan to increase joint development projects with manufacturers to produce ARATA-exclusive products sold as
private brands.
Up until this point, the company has sought to develop private brand products that were more affordably priced than the
corresponding national brands. It has recently shifted focus to developing unique products that will be recognized by consumers
for the added value they provide. According to the company, unscented softener Fabrush, one of the products it developed in
the past, has received positive reviews from consumers. The manufacturers of large national brands sell many types of scented
softeners, but unscented softeners were new to the market and customers recognized the value they offered.
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ARATA has also started applying its skill in proposing solutions for retail spaces, honed through experience in handling cosmetics,
to home goods (cooking items). For many years, the company has purchased products from a large number of cooking item
manufacturers, including SMEs, and sold them to supermarkets, general merchandise stores (GMSs), and drug stores. It is now
focused on cooperating with manufacturers to develop products with a unified design theme, and plans to promote retail space
solutions that display sets of these products. The aim is to increase the number of items consumers purchase by improving the
attractiveness of cooking item sales spaces in supermarkets, GMSs, and drug stores.
Fabrush unscented softener (left) and cooking items (right)
Source: Company data
The company discussed other initiatives including: 1) introducing robotic process automation (RPA) to increase the efficiency of
company operations (The company saved 11,000 hours/year of labor in 1H, mainly in indirect operations. It is targeting 26,000
hours/year by end-FY03/20); 2) improving supply chain efficiency (Cooperate with manufacturers on programs to increase
logistics efficiency and reduce standby time and handling time for truck drivers); and 3) strengthening the domestic e-commerce
business and overseas business (including cross border e-commerce; Sales at the Business Development Division, which manages
both businesses, grew by 32% YoY).
FY03/20 is the last year of ARATA’s current medium-term plan (FY03/18–FY03/20). The company plans to announce its new
medium-term plan in May 2020.
Q1 FY03/20 results
Summary
▷ Q1 FY03/20 results: Sales were JPY195.4bn (+1.8% YoY), operating profit was JPY2.5bn (+0.2% YoY), recurring profit was
JPY2.7bn (+5.6% YoY), and net income attributable to owners of parent was JP2.1bn (+17.6% YoY). The company has made no
changes to its 1H and full-year FY03/20 forecasts. Against 1H forecasts, Q1 sales reached 49.6% of the target, operating profit
reached 50.8%, and net income reached 60.9%. Against full-year forecasts, sales reached 25.3%, operating profit reached
26.8%, and net income reached 31.8%. The company also announced plans for the acquisition of treasury stock (maximum of
JPY3.0bn).
▷ Sales by customer type: Sales to mainstay drugstores were up 2.7% YoY to JPY96.4bn, sales to discount stores were up 5.0%
YoY to JPY14.3bn, and sales to GMS were up 0.6% YoY to JPY10.4bn. In contrast, sales to DIY centers were down 2.6% YoY to
JPY31.8bn, and sales to supermarkets were down 0.8% YoY to JPY23.4bn. Performance by customer type also affected overall
sales. In the “Other” category (including online retailers and cross-border e-commerce businesses), sales were up 7.0% YoY to
JPY19.0bn.
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▷ Sales by product category: Sales rose 2.9% YoY to JPY60.9bn in Health & Beauty, 4.6% YoY to JPY27.7bn in Household, 5.3%
YoY to JPY12.8bn in Home Goods, and 1.9% YoY to JPY36.1bn in Pet Goods/Other. Sales growth centered on key areas
outlined in the medium-term management plan. On the other hand, sales fell 5.5% YoY to JPY20.9bn in Home Care.
▷ Operating profit slightly up: Gross profit increased 2.2% YoY to JPY20.3bn and GPM improved slightly YoY to 10.4%. The
company notes that this improvement in GPM was attributable to enhanced sales in high margin categories. Shared Research
believes that H&B and Household goods are the most competitive categories in the company with a higher gross profit margin
than other categories. Therefore gradual improvement in profitability in these areas is likely to have underpinned the
improvement in GPM. SG&A expenses were up 2.4% YoY to JPY17.8bn. Growth in personnel expenses was held down to only
0.4% YoY, but packing and transportation expenses increased by 6.3% YoY. The company secured modest growth in
operating profit, which increased 0.2% YoY to JPY2.5bn. Non-operating income and expenditures also improved mainly on the
absence of arrangement fees for committed credit lines. Extraordinary gains/losses improved with the booking of gain on the
sale of securities (JPY388mn). Following on from FY03/19, sales of shares in business partners continued to improve asset
efficiency.
▷ Acquisition of treasury stock: Arata Corporation announced the acquisition of treasury stock for the purpose of implementing a
more flexible capital policy, enhancing shareholder returns, and improving capital efficiency. The acquisition will be limited to
800,000 shares (4.5% of the total number of shares outstanding) and a total acquisition of JPY3.0bn. The acquisition period will
run from August 5, 2019 to January 31, 2020. Shared Research believes that the management’s confidence in achieving the
performance targets set in the medium-term management plan and growth for the rest of the year has increased because 1)
the company indicated in its medium-term management plan that it will maintain ROE at 9% or above, and 2) Q1 results were
in line with plan.
▷ Industry reorganization: Industry restructuring is currently underway in the drugstore industry, which forms the company's
principal customer base. In particular, Sugi Holdings (TSE1: 7649) and Matsumotokiyoshi Holdings (TSE1: 3088) have made a
merger approach to cocokara fine (TSE1: 3098). The company’s the securities report shows that Arata Corporation has policy
shareholdings in cocokara fine and Sugi Holdings on the basis that these are deemed to be important business partners. There
is no disclosure for Matsumotokiyoshi Holdings, and transaction volume with Matsumotokiyoshi Holdings is likely to be small.
The company views industry restructuring as an opportunity to increase its market share as changes occur in the industry.
cocokara fine intends to disclose the results of its review of a potential capital and business alliance after mid-August 2019.
Seasonality: Sales and operating profit tend to be higher in Q3 (October–December) than in the other quarters, because product volume increases due
to the year-end holiday shopping season and other factors.
FY03/19 results
Summary
◤ FY03/19 results: Sales were JPY754.4bn (+2.9% YoY), operating profit was JPY8.9bn (+0.4% YoY), recurring profit was
JPY9.4bn (-0.1% YoY), and net income attributable to owners of parent was JP6.9bn (+8.5% YoY).
Sales by segment: Sales to drugstores (48.6% share) were up 4.9% YoY, sales to supermarkets (12.3% share) were up 0.8%
YoY, and sales to discount stores (7.3% share) were up 4.5% YoY. In contrast, sales to GMS (5.4% share) were down 4.1%
YoY and sales to DIY centers (16.4% share) grew only 0.2% YoY.
Operating profit slightly up: GPM fell slightly from 10.43% in FY03/18 to 10.36% in FY03/19, but gross profit was up 2.3%
YoY. Operating profit increased slightly. SG&A expenses were up 2.5% YoY, mainly due to a rise in distribution expenses.
OPM fell slightly from 1.21% in FY03/18 to 1.18% in FY03/19. Extraordinary profit was JPY1.2bn (including a JPY1.1bn gain
on the sale of shareholdings in business partners), and extraordinary loss was JPY516mn.
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Q4 results: In January–March 2019 (Q4 FY03/19), sales were JPY176.3bn (+2.0% YoY), gross profit was JPY18.8bn (+1.2%
YoY), SG&A expenses were JPY16.8bn (+1.1% YoY), and operating profit was JPY2.0bn (+1.8% YoY).
◤ FY03/20 company forecasts are sales of JPY771.0bn (+2.2% YoY), operating profit of JPY9.3bn (+4.6% YoY), net income of
JPY6.5bn (-5.8% YoY), and EPS of JPY374.5.
Sales up 2.2% YoY: The company is focusing on growing sales in the Health & Beauty category (handles mainstay cosmetics
products), primarily targeting drugstores. It aims to improve GPM by mainly fostering sales of competitive products and
targets OP growth by absorbing rises in SG&A expenses, such as freight.
◤ Dividends: The company forecasts annual DPS of JPY85 (+JPY5.0 YoY) and a dividend payout ratio of 22.7%.
Seasonality: Sales and operating profit tend to be higher in Q3 (October–December) than in the other quarters, because product volume increases due
to the year-end holiday shopping season and other factors.
Sales grew 2.9% YoY to JPY754.4bn in FY03/19. By customer type, sales to drugstores, which make up a large sales share, were up
4.9% YoY while sales to discount stores grew 4.5% YoY. Sales are also trending up in the overseas business, e-commerce, and
cross-border e-commerce businesses in the Other category, although their sales shares are relatively small. Sales to DIY centers
and supermarkets were flat, increasing 0.2% YoY and 0.8% YoY, respectively, while sales to GMS were weak, declining 4.1% YoY.
In Q4 FY03/19, sales to drugstores rose 3.5% YoY, and sales to discount stores grew 8.3% YoY, driving the company’s growth.
Sales to DIY centers declined for the third consecutive quarter starting in Q2 FY03/19.
By product category, sales increased 4.7% YoY in Health & Beauty, 4.6% YoY in Household, and 4.7% YoY in Home Goods, which
were the main sales drivers.
Gross profit grew 2.3% YoY to JPY79.2bn. Profit growth was slightly slower than sales growth, and GPM was down slightly from
10.43% in FY03/18 to 10.36% in FY03/19. External factors had a negative impact. Weather-related factors (summer heat wave
and warm winter) affected sales of seasonal items, and consumer sentiment dipped in 2H FY03/19. From a long-term point of
view, the company also invested upfront to increase its transaction share. Meanwhile, focusing on profitable items such as
cosmetics underpinned earnings.
SG&A expenses were up 2.5% YoY to JPY69.3bn. Packaging and transportation expenses were JPY20.3bn; the company kept the
rate of increase down to 7.5% YoY, despite the effect of higher logistics costs, through efficiency gains such as improvements in
the loading ratio and warehouse operations. Personnel expenses were down 0.5% YoY to JPY29.7bn thanks to improved
efficiency despite a period of sales growth.
Operating profit was JPY8.9bn (+0.4% YoY) and recurring profit was JPY9.4bn (-0.1% YoY). Extraordinary profit was JPY1.2bn,
including a JPY1.1bn gain on the sale of shareholdings in business partners, and extraordinary loss was JPY516mn, including a
JPY264mn loss associated with a fire. Net income grew 8.5% YoY to JPY6.9bn. The company expects to partially recover the
fire-related loss from insurers, but booked the full amount as a loss, because the payout had not been finalized as of the end of
FY03/19.
Q3 FY03/19 results
Summary
◤ Q3 results: Sales for the nine months ended December 31, 2018 were JPY578.1bn (+3.2% YoY), operating profit was
JPY6.9bn (flat YoY), and net income was JPY5.2bn (+0.1% YoY). During the October–December quarter, sales were
JPY197.0bn (+3.6% YoY), operating profit was JPY2.5bn (-0.2% YoY), and net income was JPY1.9bn (-5.0% YoY).
◤ Downward revision to full-year forecast: The company revised downward its forecast for FY03/19 to sales of JPY755.0bn
(+3.0% YoY, previous forecast called for JPY760.0bn), operating profit of JPY8.6bn (-2.9% YoY, JPY9.7bn), net income of
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JPY6.4bn (+0.6% YoY, JPY6.5bn), and EPS of JPY371.1 (JPY389.8). The company maintained its dividend forecast of
JPY80/share.
◤ Sales by customer type: During the October‒December quarter, sales were up 3.6% YoY, recovering from an increase of
just 1.7% YoY in the July–September quarter. By customer type, sales to drugstores were up 6.6% YoY, and sales to discount
stores were up 4.3%, driving overall growth. Sales to supermarkets were up 2.2%, sales to DIY centers were down 1.6%, and
sales to GMSs were down 1.8%.
◤ Gross profit and SG&A expenses: In the October‒December quarter, gross profit was JPY20.2bn, up 2.9% YoY, but SG&A
expenses rose 3.3% YoY, to JPY17.8bn. OPM was 1.2%, down from 1.3% a year earlier.
Performance in October–December 2018
In the October‒December 2018 quarter, sales rose 3.6% YoY, to JPY197.0bn; operating profit fell 0.2% YoY, to JPY2.5bn; and net
income decreased 5.0% YoY, to JPY1.9bn. The 3.6% YoY sales rise represented a recovery from a 1.7% YoY increase in the July–
September quarter. Even so, operating profit continued to decline, following a 1.2% YoY fall in the July‒September quarter.
By customer type, sales to drugstores were up 6.6% YoY, and sales to discount stores were up 4.3%, driving overall growth. Sales
to supermarkets were up 2.2%, sales to DIY centers were down 1.6%, and sales to GMSs were down 1.8%.
Gross profit rose 2.9% YoY, to JPY20.2bn. The company worked to boost GPM through increased sales of highly profitable
products, but says these efforts have not come to fruition as of yet. SG&A expenses were up 3.3% YoY, to JPY17.8bn. Until
FY03/18, the company was able to raise profitability by constraining the rate of growth in SG&A expenses. In the October‒December quarter, however, packaging and transportation expenses grew 9.2% YoY, to JPY5.4bn, making it difficult to hold
down SG&A expenses.
Downward revisions to FY03/19 forecast
Along with cumulative Q3 earnings, the company announced downward revisions to its full-year forecast for FY03/19. The
company revised downward its forecast to sales of JPY755.0bn (+3.0% YoY, previous forecast called for JPY760.0bn), operating
profit of JPY8.6bn (-2.9% YoY, JPY9.7bn), net income of JPY6.4bn (+0.6% YoY, JPY6.5bn), and EPS of JPY371.1 (JPY389.8). Sales
grew only 1.7% in the July–September quarter due to unseasonable weather and natural disasters. The company revised its
forecast because it was unable to compensate for this slower growth even with the higher 3.6% YoY growth in the October–
December quarter. Furthermore, higher freight rates made it difficult to curtail SG&A expenses, leading the company to forecast
a decline in operating profit.
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Other information
History
Source: Shared Research based on company materials
In April 2002, Daika K.K., Ito-I Co., Ltd., and Sunvic Co., Ltd. jointly established ARATA Corporation as a holding company and
became fully owned subsidiaries. In the early 2000s, Japan was experiencing an increasingly pronounced deflationary trend. All
manner of items was experiencing downward price pressure, affecting the everyday items and cosmetics industries and making it
difficult to remain profitable in the wholesaling business. In the downstream retail segment, 2000 was marked by the opening in
Japan of the Costco Makuhari warehouse and a Carrefour store, also in Makuhari. The emergence in Japan of such foreign retailers
with global procurement capabilities prompted the nationwide expansion (increase in area) of some of Japan’s largest retailers
and proactive emergence as chains.
The wholesale sector was also called on to expand operations nationwide, offer services that were consistent throughout Japan,
and reduce costs. This was the backdrop for the merger between Daika (base of operations in eastern Japan, from Hokkaido to
Kanto), Ito-I (Chubu region), and Sunvic (Kyushu/Chugoku region). Later in 2002, Tokukura Co., Ltd., became a subsidiary.
Kisosei Co., Ltd., became a subsidiary in 2004. In 2006, the company merged with Kansai-based SISCO Co., Ltd., transitioning to
“ARATA,” a wholesaler of everyday items offering services throughout Japan and with a strong regional focus.
In 2005, Japell Co., Ltd., a company specializing in pet foods, became a subsidiary. To this day, pet goods help differentiate
ARATA from its competitors.
In November 2006, ARATA established Dentsu Retail Marketing in collaboration with three other companies: Dentsu Tec, a
subsidiary of Dentsu (TSE1: 4324), NEC (TSE1: 6701), and Dai Nippon Printing (TSE1: 7912). (Initially, ARATA held 20% of this
company, an equity-method affiliate. Its equity stake is now 36%.) In April 2007, ARATA established ISM Corporation as a
subsidiary. Its goal in setting up these companies was to help ARATA evolve from an entity connecting manufacturers and
retailers into a company that could make useful proposals to retailers on creating effective retail spaces, adding value to the
wholesale business.
In February 2012, the company established a subsidiary in Shanghai, followed by a subsidiary in Bangkok in 2013. These
subsidiaries are part of ARATA’s efforts to increase its overseas sales.
Date EventApril 2002 Established the holding company ARATA CORPORATION together with Daika Kabushiki Kaisha, Ito-I Co., Ltd. and Sunvic
Co., Ltd. and listed on the JASDAQSeptember Made Tokukura Co., Ltd. a subsidiary through a stock-for-stock mergerApril 2004 Transitioned from a holding company to an operating companyAugust Made Kisosei Co., Ltd. a subsidiary through a stock-for-stock mergerApril 2005 Merged with subsidiary Kisosei Co., Ltd., and its subsidiaries Kisosei Service Co., Ltd. and Dorf Co., Ltd.December Made Japell Co., Ltd. a subsidiary through a stock-for-stock mergerOctober 2006 Merged with SISCO Co., Ltd.November Established DENTSU RETAIL MARKETING INC. together with DENTSU TEC INC., a wholly owned subsidiary of DENTSU
INC., NEC Corporation, and Dai Nippon Printing Co., Ltd.April 2007 Established ISM Corporation as a subsidiaryDecember Acted to acquire treasury stock with the aims of improving capital efficiency and returning profits to shareholders,
acquiring 4,066,750 shares (5.13%) through a tender offerSeptember 2008 Started service of sending planograms (information for shelving) together with CS YAKUHIN CO., LTD., CYBERLINKS
CO., LTD., and NIPPON SOGO SYSTEMS, INC.March 2010 Concluded a business cooperation agreement with NIPPON ACCESS, INC. and Alfresa Holdings CorporationMarch 2011 Listed stock on the Second Section of the Tokyo Stock ExchangeFebruary 2012 Established ARATA (Shanghai) Trade Co., Ltd.March Listed on the First Section of the Tokyo Stock ExchangeAugust Acquired share of Ichino Co., Ltd. (currently Living Arata Co., Ltd.) and made the company a subsidiaryOctober 2013 Established ARATA (THAILAND) CO., LTD. in Bangkok, Thailand as a subsidiaryMarch 2015 Established joint venture SIAM ARATA CO., LTD. with Saha Group Co., Ltd. in Bangkok ThailandJune 2016 Issued 1st unsecured convertible bond-type bonds with share acquisition rights and 120% call option attachedJuly 2018 Issued new shares, disposed of treasury share, and issued 2nd unsecured convertible bond-type bonds with share
acquisition rights and 120% call option attachedApril 2019 Merged with subsidiary Fashion ARATA
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News and topics
August 2019 On August 2, 2019, the company announced the acquisition of treasury stock.
Acquisition of treasury stock
Reason for acquiring treasury stock: As part of a flexible capital policy to respond to changes in the business environment, the
company aims to enhance shareholder returns and improve capital efficiency.
Details of share buyback
▷ Type of shares to be acquired: Company common stock
▷ Total number of shares that can be acquired: 800,000 shares (upper limit, 4.5% of total number of shares outstanding
(excluding treasury shares)
▷ Total acquisition cost: JPY3.0bn (upper limit)
▷ Acquisition period: August 5, 2019 to January 31, 2020
▷ Method: Market purchase on the Tokyo Stock Exchange
Corporate governance and top management
Corporate governance
Source: Shared Research based on company materials
Top management Chairman of the Board: Nobuyuki Hatanaka (born August 1, 1949)
Joined Tomen Corporation in 1972. In June 1974, entered Shukosha K.K., becoming a director in November, being appointed
managing director in 1983, vice president in 1988, and president in 1998. In 2002, appointed representative director and
chairman of Itoyasu Co., Ltd.; appointed representative director and chairman of SISCO Co., Ltd., in 2004; appointed
representative director, vice president and executive officer of ARATA in 2006; and appointed representative director, president,
and executive officer in 2007. In 2008, appointed representative director and chairman of Fashion Arata Corporation. Appointed
representative director, chairman, and CEO of ARATA in 2017. Appointed Chairman of the Board in 2019.
Form of organization and capital structureForm of organization Company with Audit & Supervisory BoardControlling shareholder and parent company NoneDirectors and Audit & Supervisory Board membersNumber of directors under Articles of Incorporation 15Number of directors 9Directors' terms under Articles of Incorporation 1 yearChairman of the Board of Directors ChairmanNumber of outside directors 2Number of independent outside directors 2Number of members of Audit & Supervisor Board under Articles of Incorporation 5Number of members of Audit & Supervisor Board 4Number of outside members of Audit & Supervisory Board 2Number of independent outside members of Audit & Supervisory Board 2OtherParticipation in electronic voting platform YProviding convocation notice in English YImplementation of measures regarding director incentives Performance-linked compensationsEligible for stock option -Disclosure of individual director's compensation NonePolicy on determining amount of compensation and calculation methodology In placeCorporate takeover defenses None
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Representative Director and President: Hiroaki Suzaki (born October 25, 1955)
Joined Daika K.K. in 1978. In 2002, appointed branch manager of the Chiba branch. Became manager of the Tokorozawa branch
of ARATA in 2004, and the general manager in charge of products in the sales division in 2007. Also made executive officer in
2008. In 2012, appointed executive officer, general manager in charge of products and general manager in charge of
development strategy in the sales division. In 2014, appointed director, managing executive officer, and general manager of the
Chubu branch. In January 2017, appointed director, vice president, operating officer, standing general manager of sales
headquarters. In April 2017, became representative director, president, and COO.
Representative Director and Executive Vice President: Yoichi Suzuki (born April 23, 1953)
Joined Ito-I Co., Ltd. in 1980. Appointed director of ARATA in 2002. Appointed senior managing director and general manager of
operations in 2004; appointed representative director, senior managing executive officer, general manager of administration, and
head of the internal control office in 2007; appointed representative director, executive vice president, and general manager of
administration in 2009; appointed representative director, executive vice president, general manager of administration, and
general manager of systems in 2015. In 2018, appointed representative director, executive vice president, and general manager
of administration.
Dividend policy
Source: Shared Research based on company materials
The company has a basic policy of maintaining stable dividends, deciding the figure after taking into overall consideration
performance during each fiscal year, as well as financial condition, and future development plans. The company has not set a
specific target for the dividend payout ratio. This ratio was 26.1% in FY03/16, 19.6% in FY03/17, 18.8% in FY03/18, and 20.1% in
FY03/19. Based on its initial forecasts for FY03/20 of JPY85/share, the payout ratio would be 22.7%.
Major shareholders
Source: Shared Research based on company materials (as of end-September 2019)
Employees
Source: Shared Research based on company materials
Per share data (split-adjusted; JPY) FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.15.4 15.4 15.4 15.4 15.4 15.4 14.7 16.7 17.7
EPS 67.6 105.6 114.7 158.0 73.0 210.4 331.0 399.1 397.7 EPS (fully diluted) - - - - - - 294.9 377.8 381.2 Dividend per share 35.0 40.0 40.0 50.0 50.0 55.0 65.0 75.0 80.0
Payout ratio 51.8% 37.9% 34.9% 31.6% 68.5% 26.1% 19.6% 18.8% 20.1%Book value per share 2,960 3,068 3,180 3,309 3,496 3,628 4,055 4,285 4,547
Shares outstanding (ex. treasury shares, mn)
Top shareholders Shares held ('000) Shareholdingratio
Otowasyokusan Co., Ltd. 1,081 6.1%ARATA Employee Shareholding Association 937 5.3%The Master Trust Bank of Japan, Ltd. (Trust 924 5.3%Japan Trustee Services Bank, Ltd. (Trust account) 900 5.1%
594 3.4%
481 2.7%465 2.6%
459 2.6%344 2.0%
Japan Trustee Services Bank, Ltd. (Trust account 9) 321 1.8%SUM 6,511 37.0%
Lion CorporationGovernment of Norway (Standing proxy: Citibank N.A. Tokyo Branch)Nobuyuki HatanakaGomei Kaisha Kisosei Shoten
Northern Trust Co. (AVFC) Re Fidelity Funds (Standing proxy: The Hongkong and Shanghai Banking Corporation Limited, Custody Department)
Number of employees FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.
Consolidated 3,010 2,977 2,960 2,924 2,917 2,914 2,926 3,023 3,016 Temporary staff (average) 4,138 4,648 4,935 5,287 5,174 5,091 5,052 5,255 5,219
Parent 2,250 2,209 2,174 2,102 2,083 2,056 2,047 2,096 2,061 Temporary staff (average) 3,579 4,052 4,290 4,647 4,505 4,446 4,339 4,444 4,408
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Sales are growing at an annual rate of 3–4%, but the overall number of employees (parent-only basis, including temporary
employees) remains generally flat. Per-capita productivity is therefore growing.
Key group companies
Source: Shared Research based on company materials
Profile
Company Name Head Office
ARATA CORPORATION East 21 Tower
6-3-2, Toyo, Koto-ku, Tokyo
Phone Exchange Listing
+81-3-5635-2800 Tokyo Stock Exchange, First Section
Established Listed On
April 1, 2002 March 19, 2012
Website Fiscal Year-End
http://www.arata-gr.jp/company/en/data.html March 31
IR Contact IR Web
- http://www.arata-gr.jp/ir/
Japell Co., Ltd. Kasugai 100% Subsidiary
Japell Partnership Service Co., Ltd. Kasugai 100% Subsidiary
Pet Library Ltd. Komaki 100% Subsidiary
Mobby Co., Ltd. Hiratsuka 100% Subsidiary Export and import of pet-related products
ISM Corporation Tokyo 80% Subsidiary
Living Arata Co., Ltd. Higashi Osaka 100% Subsidiary
ARATA (Shanghai) Trade Co., Ltd. Shanghai 100% Subsidiary
Japell (Hong Kong) Co., Limited Hong Kong 100% Subsidiary
Arata (Thailand) Co., LTD. Bangkok 49% Subsidiary
SIAM ARATA CO., LTD. Bangkok 75% Subsidiary
DENTSU RETAIL MARKETING INC. Tokyo 36%
Asahi Keshohin Hanbai Co., Ltd. 49%
Name Location Votingrights Category
Wholesaling and import/export sales of daily goods, cosmetics, pet goods, andhome goods, as well as other related services
Wholesaling of pet-related products
Retail sales of pet-related products, grooming services, recruitment of franchisestoresSales of pets, pet food and pet goods, pet grooming, boarding, pet insuranceservices
Store management company
Wholesaling of home goods
Wholesale business in Thailand
Field support servicesEquity-methodaffiliate
Business
Urasoe,Okinawa
Equity-methodaffiliate
Wholesale of cosmetics, perfumed soap, tooth paste, food and beverages, textileproducts, and miscellaneous goods
Retailing, wholesaling, and import/export sales of pet-related products, as well asother related servicesWholesale business in Thailand
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